 Exchange rate fundamentals and the Canadian dollarRobert Lafrance and Simon van Norden () Bank of Canada Review, 1995, vol. 1995, issue Spring, 17-33 Abstract: Views in the economic literature on the main factors that influence exchange rates have evolved over time in response to economic developments and new trends in economic theory. This article provides a brief interpretative survey of the main theories of exchange rate determination. The factors that influence exchange rate developments are varied and complex. However, the authors show that the broad movements of the Canada-U.S. real exchange rate since the early 1970s can be captured by a simple equation that highlights the role of commodity prices and Canada-U.S. interest rate differentials. The equation is used to interpret the evolution of the real exchange rate over the last two decades. At times, the real exchange rate deviates significantly from what the equation would predict. One explanation is that the equation omits certain factors that can influence the exchange rate, particularly in the short run. These may include fiscal policy variables, international indebtedness, political uncertainty, and investor sentiments -- factors that are difficult to quantify but that have been particularly relevant in recent years. JEL-codes: F31 F41 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bca:bcarev:v:1995:y:1995:i:spring95:p:17-33 Access Statistics for this article More articles in Bank of Canada Review from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC. |
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