The Stability of the Canadian Fexible Exchange Rate, 1950–1962

Abstract

Canada had a flexible exchange rate from October 2, 1950, to May 2, 1962. Many observers have commented on the stability of the Canadian exchange rate during this period and have discussed the significance of the Canadian experience for the general debate on fixed v. flexible exchange rates. The purpose of this article is not to enter this debate directly, but rather to document the facts on stability and to examine two possible reasons for it. Using daily data on the US/Canadian exchange rate, measures of the stability of the rate are presented in section I. In section II tests of the hypothesis that speculators were a stabilizing force are conducted, and an affirmative conclusion reached. Finally, in section III the argument is made that much of the stability may have been a result of the generally parallel courses of the Canadian and United States economies in the years from 1950 to 1962.