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The Canadian-U.S. Exchange Rate: Evidence from a Vector Autoregression

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  • Backus, David

Abstract

A vector autoregression is used to elicit the empirical facts co ncerning exchange rate movements. The author finds (1) the exchange rate, relati ve price levels, and trade balances are closely related;(2) most other lagged v ariables have no perceptible influence in theexchange rate equation; (3) exchan ge rate innovations are negativelycorrelated with innovations in output and pri ces, positively with innovations in the balance of trade, and almost not at all with innovations in money; and (4) impulses in money, trade balances, and govern ment spending are followed by opposing future movements in theexchange rate and the price level. Taken as a whole, the evidence suggests that exchange rate cha nges may be associated with real, rather than monetary, shocks. Copyright 1986 by MIT Press.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics & Statistics.

Volume (Year): 68 (1986)
Issue (Month): 4 (November)
Pages: 628-37

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Handle: RePEc:tpr:restat:v:68:y:1986:i:4:p:628-37

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Web page: http://mitpress.mit.edu/journals/

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Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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Cited by:
  1. Masih, Abul M. M. & Masih, Rumi, 1996. "Empirical tests to discern the dynamic causal chain in macroeconomic activity: new evidence from Thailand and Malaysia based on a multivariate cointegration/vector error-correction modeling approach," Journal of Policy Modeling, Elsevier, vol. 18(5), pages 531-560, October.
  2. Joyce, Theodore & Grossman, Michael, 1990. "The dynamic relationship between low birthweight and induced abortion in New York City : An aggregate time-series analysis," Journal of Health Economics, Elsevier, vol. 9(3), pages 273-288, November.
  3. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
  4. Benjamin Cheng, 1997. "The causality between dollar and pound: An application of cointegration and error-correction modeling," Journal of Economics and Finance, Springer, vol. 21(2), pages 19-26, June.
  5. Masih, Abul M. M. & Masih, Rumi, 1997. "Dynamic linkages and the propagation mechanism driving major international stock markets: An analysis of the pre- and post-crash eras," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(4), pages 859-885.

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