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A Foreign Activity Measure for Predicting Canadian Exports

Louis Morel

Discussion Papers from Bank of Canada

Abstract: The author constructs a measure of foreign activity that takes into account the composition of foreign demand for Canadian exports. It has a number of interesting features. First, the foreign activity measure captures both the composition of demand in the United States (by including components of U.S. private final domestic demand) and economic activity outside of the United States. Second, its coefficients have been estimated over the sample period 1981–2009 controlling for the effect of changes in relative prices. Third, compared with the Bank’s previous U.S. activity index (introduced in the July 2009 Monetary Policy Report), the foreign activity measure provides some improvements for forecasting Canadian exports, especially at longer horizons. For instance, at eight quarters ahead, the gain in terms of forecast accuracy is as much as 22 per cent. Finally, the foreign activity measure helps to explain why Canadian exports dropped by 20 per cent during the global recession of 2008–09 and have only partially recovered since that time.

Keywords: Balance of payments and components; Exchange rates; Recent economic and financial developments (search for similar items in EconPapers)
JEL-codes: E00 F17 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2012
New Economics Papers: this item is included in nep-for and nep-mac
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocadp:12-1

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