Productivity, commodity prices and the real exchange rate: The long-run behavior of the Canada–US exchange rate

Ehsan Choudhri () and Lawrence Schembri ()

International Review of Economics & Finance, 2014, vol. 29, issue C, 537-551

Abstract: The paper examines the Canada–US real exchange rate since the early 1970s to test two popular explanations of the long-run real exchange rate based on the influence of sectoral productivities and commodity prices. The empirical analysis finds that both variables exert a significant long-run effect. However, the relation for the real exchange rate has shifted as the effect of each variable has become stronger and a positive trend is present since 1990. The effect of productivity, moreover, is opposite to that predicted by the standard Balassa–Samuelson theory. An explanation of these findings is suggested based on a general-equilibrium model that includes differentiated traded manufactures and homogeneous commodities.

Keywords: Real exchange rates; Productivity; Commodity prices; Balassa–Samuelson model (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)

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Working Paper: Productivity, Commodity Prices and the Real Exchange Rate: The Long-Run Behavior of the Canada-US Exchange Rate (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:29:y:2014:i:c:p:537-551

DOI: 10.1016/j.iref.2013.08.003

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