Canadian Monetary Policy and Real and Nominal Exchange Rates
AbstractThis paper analyzes the relationship between Canadian Monetary Policy and the movements of Canada's real and nominal exchange rates with respect to the U.S. A broad-based theory is developed to form the basis for subsequent empirical analysis. The main empirical result is that the Canadian real exchange rate has been determined in large part by capital movements into and out of Canada as compared to the U.S. and world energy prices. Additional important determinants were world commodity prices and Canadian and U.S. real GDPs and employment rates. No evidence of effects of unanticipated money supply shocks on the nominal and real exchange rates is found. Under conditions where exchange rate overshooting is likely to occur in response to monetary demand or supply shocks, this suggests that the Bank of Canada follows an orderly-markets style of monetary policy and the conclusion is that this is the best approach under normal conditions. Finally, it is shown that in response to a domestic inflation rate that has become permanently too high or a catastrophic situation in the U.S., the Bank of Canada can induce a one-percent short-run change in the unemployment rate by pushing the nominal and real exchange rates in the appropriate direction by between five and six percent.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-430.
Length: 44 pages
Date of creation: 16 May 2011
Date of revision:
Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283
Real Exchange Rate Canadian Monetary Policy;
Find related papers by JEL classification:
- A - General Economics and Teaching
- E - Macroeconomics and Monetary Economics
- F - International Economics
- G - Financial Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-11 (All new papers)
- NEP-CBA-2011-06-11 (Central Banking)
- NEP-MAC-2011-06-11 (Macroeconomics)
- NEP-MON-2011-06-11 (Monetary Economics)
- NEP-OPM-2011-06-11 (Open Economy Macroeconomic)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer).
If references are entirely missing, you can add them using this form.