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A series of major international financial crises in the 1990s, and the recent introduction of the euro, have renewed interest in alternative exchange rate systems. The choice of exchange rate regime is particularly relevant for emerging-market countries because other countries are perceived either as having no alternative to their current exchange rate arrangement or as highly unlikely to change. This article examines the evolution of exchange rate regimes in emerging markets over the past decade and compares the strengths and weaknesses of the various available systems. These include intermediate regimes, such as the adjustable pegged exchange rate popular throughout much of the post—war period, and the two extreme exchange rate regimes: permanently fixed or freely floating exchange rate regimes. Two recently proposed alternatives are also evaluated: the Managed Floating Plus and Baskets, Bands, and Crawling Pegs. Both try to combine the best elements of the flexible and fixed exchange rate systems, but the Managed Floating Plus is deemed to be the more promising alternative.

This special issue, “Real-Financial Linkages,” examines the Bank’s research using theoretical and empirical models to improve its understanding of the linkages between financial and macroeconomic developments in the wake of the recent global financial crisis.

This paper examines the impact of a collapsing exchange rate regime on output in an open economy in which shocks to capital flows and exports predominate. A sticky-price rational expectations model is used to compare the variability of output under the collapsing regime to that under alternative fixed and flexible regimes. Output is found to […]

The common-factor hypothesis is one possible explanation for the housing wealth effect. Under this hypothesis, house price appreciation is related to changes in consumption as long as the available proxies for the common driver of housing and non-housing demand are noisy and housing supply is not perfectly elastic.

Can macroprudential foreign exchange (FX) regulations on banks reduce the financial and macroeconomic vulnerabilities created by borrowing in foreign currency? To evaluate the effectiveness and unintended consequences of macroprudential FX regulations, we develop a parsimonious model of bank and market lending in domestic and foreign currency and derive four predictions.

The author studies the effects of capital reallocation (the flow of productive capital across firms and establishments mainly through changes in ownership) on aggregate labour productivity. Capital reallocation is an important activity in the United States: on average, its total value is 3–4 per cent of U.S. GDP.

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Leonard C. Wyon: Canada’s Victorian Engraver

Photography by Gord Carter

Although many countries have abandoned monetary targeting in recent decades, monetary aggregates are still useful indicators of future economic activity. Past research has shown that, compared with other monetary aggregates and expressed in real terms, net M1 and gross M1 have traditionally provided superior leading information for output growth.

The authors study the macroeconomic effects of non-zero trend inflation in a simple dynamic stochastic general-equilibrium model with sticky prices.

I chose to speak about globalization at the outset of my tenure because it will continue to be one of the forces shaping our economy and economic policy for years to come. Steady advances in transportation, communication, and information technologies, underpinned by the more widespread adoption of free-market economic policies, are shrinking the globe and expanding the global economy.