One Market, One Money: Evidence from Canada–United States Economic Integration

In this paper, we focus on the evolution of the optimum currency area (OCA) properties between Canada and the United States. To this end, we specifically investigate the relationship between the intra-industry trade dynamics of Canadian provinces with the United States and the increasing level of integration between the two countries from 1980 to 1998. Our findings lead us to support the view that integration (real and monetary) improves the conditions under which a monetary union can yield net gains in the long run for the integrating countries. We also find that exchange rate developments exert asymmetric effects on the Canadian provinces.