Thomas J. Courchene

North American Monetary Union: analytical principles and operational guidelines

Abstract The paper argues the case for a North American Monetary Union (NAMU) in parallel with NAFTA. The emergence of the Euro provides an economic blueprint for a continental monetary area built around the U.S. dollar. NAMU is an appropriate institutional response to the deep economic integration that has occurred between Canada, Mexico and the U.S. NAMU in particular is a superior alternative to dollarization in the Hemisphere. By way of making the case for a NAMU the paper also argues that from the Canadian perspective a) Canada’s floating exchange rate has not worked well; b) there are persuasive arguments for greater exchange rate fixity between Canada and the U.S.; and c) the longer-term objective of moving towards exchange-rate fixity should be a North American Monetary Union.

The Demand for International Reserves

IN THE last decade, many theoretical and empirical studies have dealt both with the existence and implications of a stable demand function for money and with the adequacy of the existing level of money balances. Despite the many similarities between the functions and characteristics of money and those of international reserves, only the adequacy question receives wide attention in the current international-payments literature. This is very unfortunate, since just as the money supply can be said to be adequate only with reference to a demand function for money balances, so too the supply of reserves can be said to be adequate only with reference to a demand function for reserves. Thus the whole question of the adequacy of international reserves is contingent upon information that can only come from empirical work. Suppose, for example, we look at world-trade flows through the framework of the quantity theory. It is obvious that if the velocity of world reserves can vary widely, any given level of international reserves can be adequate. Velocity will merely adjust so that MV equals PT. But is velocity this malleable? Is it constant? Or is it a stable function of a few variables (as is the velocity of money in the neo-quantity theory)? This is tantamount to asking whether there exists a demand function for reserves. These questions have rarely been posed, let alone answered. Yet implicit in the frequent discussions of the international-payments mechanism is some assumption about the velocity of world reserves. Statements to

FTA at 15, NAFTA at 10: a Canadian perspective on North American integration ☆

Abstract NAFTA has facilitated a dramatic increase in North American trade and integration. Indeed, the degree of integration is now running ahead of NAFTA’s institutional capacity to sustain it. Accordingly, the analysis focuses on a range of proposals designed to broaden and deepen NAFTA. The analysis concludes with an assessment of these proposals and with a set of conjectures in terms of the likely role and scope of NAFTA at 20.

Federal-Provincial Tax Equalization: An Evaluation

Federal-Provincial Tax Equalization: An Evaluation. The Canadian scheme for transferring revenues from Ottawa to the poorer provinces is cast in an algebraic framework and then evaluated, both on an empirical and analytical level. Included is a sensitivity analysis designed to answer questions such as the effect on Saskatchewans equalization payments of an increase in Nova Scotias sales tax. Included also is a discussion of the possibility for provincial strategies under the scheme. Several alternative formulations for equalization are also presented and evaluated. The final substantive section of the paper focuses on the funding of the scheme.

Alternative North American Currency Arrangements: A Research Agenda

tionship with the United States, including a common currency and an open-borders policy, our paper received a lot of media play. This met one of our goals to place the issue of a North American monetary union (NAMU) in the public domain and, hopefully, on the policy agenda. However, a related goal to provide an agenda for further research relating to the evolution of Canadian currency arrangements was largely lost in the nationalist and identity rhetoric that dominated much of the commentary. Accordingly, I have recast my original comments somewhat, placing less emphasis on the details of the analysis in our paper and more on highlighting those aspects of the analysis that are amenable to further research.

Money Supply and Money Demand: An Econometric Analysis for Canada

MONEY INCOME Y can be expressed as a product of a money stock M and a money velocity v. In turn the money stock can be ex^ pressed as a product of a monetary base B and a money supply multiplier m. Combining these yields the quantity-theory-type expression Y = vmB. Interpreted as an identity, this equation automatically yields a value for vm once Y and B are specified. With the money supply defined as the monetary base, m equals unity and the product mv (= v) is simply the income velocity of the monetary base. With a more extended definition of money the money supply multiplier assumes a value greater than unity but velocity declines proportionally, smce the product mv is constant for given B and Y. This simple but broadly encompassing equation provides the framework within which this paper proceeds. Specifically, we intend (a) to investigate the determinants

The Future of the Canadian Currency Union: NAFTA and Quebec Independence

Research based on the operations of Canadian federalism has frequently provided valuable insight into the likely workings of European Monetary Union (EMU). For example, Courchene (1993) focussed on the implications of unrestricted provincial borrowing on the ability of the Bank of Canada to pursue overall price stability, with implications for the Maastricht debt/deficit guidelines; Bayoumi and Masson (1998) show that Canadian fiscal policy is more effective in cushioning provincial fiscal shocks than is provincial stabilization policy, providing an argument for expanding the fiscal policy role at the EU level; and Hanson and Waller (this volume) demonstrate that, thanks to Canada’s branch-banking system, savings and investment are uncorrelated across Canada’s provinces/regions which, in turn, leads the authors to recommend that European-wide branch banking might be an important ingredient in achieving fuller financial integration under the Euro.

General Equilibrium Models and the World Payments System

The purpose of this paper is to develop a series of world economic models that integrate value and monetary theory under varying institutional frameworks and to derive implications therefrom relating to the operation of the international payments system. Most of the comparative-static analysis that follows borrows heavily from that developed by Patinkin [8, ch. 9-11, and various appendices]. But in adapting the Patinkin framework to the world economy1 we build upon the approach used by Mosak in his impressive General Equilibrium Theory in International Trade [5, ch. 3]. The paper proceeds as follows. In Part II we develop the basic analytical framework that is employed throughout the paper. Parts III and IV adapt this framework in turn to a gold standard and to a flexiblerate standard. In V we present a highly abstract model of the present internationalpayments system and then proceed to