The Canada-U.S. Exchange Rate: Evidence for a Vector Autoregression

David Backus

Working Paper from Economics Department, Queen's University

Abstract: A vector autoregression is estimated for the U.S. and Canada to elicit the "facts" concerning the exchange rate, money, prices, current account balances and other macro variables. I use a stylized version of Dornbusch's "sticky-price" model for comparison, since interpretation is difficult without an identified structural model. The exchange rate, relative prices, and current account balances are closely related. The money supply is not exogenous, and the exchange rate and relative prices do not respond as the model predicts to monetary shocks. Real shocks and changes in relative prices were apparently an important source of exchange rate movements during the past decade.

Pages: 34
Date: 1982
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:515

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