The impact of world oil price shocks on the Canada/U.S. real exchange rate

Jing Zhao and Savannah Wei Shi

The International Trade Journal, 2018, vol. 32, issue 4, 343-362

Abstract: This article investigates whether and how changes in the world oil price affect the Canada/U.S. real exchange rate. We applied vector autoregression and vector error correction models for the real exchange rate, world oil price, monetary differential, government spending, and productivity differential between the two countries. Our results demonstrate that a surge in the world oil price will lead to an appreciation of the Canadian dollar in the short and long term. Product differentials and U.S. government spending have a negative impact on the Canada/U.S. real exchange rate, and Canadian government spending leads to a depreciation of the Canadian dollar.

Date: 2018
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DOI: 10.1080/08853908.2017.1414002

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