Is Canada an optimal currency area? An inflation targeting perspective

摘要

We propose a method, based on the currency union model of Gali and Monacelli (2008), to determine whether a region within an existing currency area belongs in the currency union. The method involves assessing the predictability of regional inflation rates at medium term horizons. We apply the method to the Canadian provinces and find that for all but Alberta there is little evidence of costs in terms of inflation arising from 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 might improve inflation outcomes.