In Canada, foreign exchange rate reserves were accumulating under the pegged exchange rate. Rather than continue to allow US inflationary pressure to spill over to Canada, authorities allowed the exchange rate to float—in other words, to be determined by market forces. The Canadian dollar rapidly appreciated, helping stem the inflationary pressure.8 It’s insightful to compare our experience with Mexico’s over the same period.
This process will take time. But if history is a guide, in an expanding economy job creation will eventually outstrip job destruction, and lower the unemployment rate. The increase in payrolls in September was a start, and I hope will be followed by larger gains in future months.