Is Canada an Optimal Currency Area? An Inflation Targeting Perspective

60 Pages Posted: 8 Sep 2013 Last revised: 11 Jun 2015

See all articles by Maxym Chaban

Maxym Chaban

University of Saskatchewan, Department of Economics

Graham M. Voss

University of Victoria - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 10, 2015

Abstract

We propose a method, based on the currency union model of Gali and Monacelli (2008), to determine whether a region belongs to an existing optimal currency area. The method involves assessing the predictability of regional inflation rates at medium term horizons. We apply the methods to the Canadian provinces and find that for all but Alberta there are no costs in terms of inflation for operating under a common national monetary policy. For Alberta, the evidence suggests that they are not as well served by the inflation targeting framework and that a more flexible policy environment would improve inflation outcomes.

Keywords: optimal currency area, currency union, inflation targeting, optimal monetary, fiscal policies

JEL Classification: E31, E58

Suggested Citation

Chaban, Maxym and Voss, Graham M., Is Canada an Optimal Currency Area? An Inflation Targeting Perspective (June 10, 2015). Available at SSRN: https://ssrn.com/abstract=2321197 or http://dx.doi.org/10.2139/ssrn.2321197

Maxym Chaban (Contact Author)

University of Saskatchewan, Department of Economics ( email )

9 Campus Drive
Saskatoon, Saskatchewan S7N 5A5
CANADA

HOME PAGE: http://homepage.usask.ca/~mac945

Graham M. Voss

University of Victoria - Department of Economics ( email )

Victoria V8W Y2Y, BC
Canada

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