Productivity, Commodity Prices and the Real Exchange Rate: The Long-Run Behavior of the Canada-US Exchange Rate

Ehsan Choudhri () and Lawrence Schembri ()

Working Paper series from Rimini Centre for Economic Analysis

Abstract: The paper examines the Canada-U.S. real exchange rate since the early 1970’s 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: 2013-08
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Productivity, commodity prices and the real exchange rate: The long-run behavior of the Canada–US exchange rate (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:45_13

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