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A Further Analysis of Exchange Rate Targeting in Canada

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  • Robert A. Amano

    (Bank of Canada)

  • Tony S. Wirjanto

    (University of Waterloo)

Abstract

In a recent paper Mercenier and Sekkat (1988) conclude that the Bank of Canada has followed a policy of exchange rate targeting using the money supply. We reexamine their results using a different estimation approach and with different assumptions about the forcing process of the exogenous variables. We also extend the sample period to include more recent observations. While we find some weak evidence to support their conclusion, the results, in general, suggest that the Bank of Canada has not used the money supply to target the Canada-U.S. exchange rate.

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Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 9406001.

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Length: 29 pages
Date of creation: 22 Jun 1994
Date of revision: 22 Jun 1994
Handle: RePEc:wpa:wuwpem:9406001

Note: 29 printed pages, Compressed PostScript file. If you have trouble viewing the complete document, please print it out on a postscript printer. Other recent Bank of Canada working papers are listed on the last page of this report.
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  1. Dolado, Juan & Galbraith, John W & Banerjee, Anindya, 1991. "Estimating Intertemporal Quadratic Adjustment Cost Models with Integrated Series," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 919-36, November.
  2. James G. MacKinnon, 1990. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  3. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January.
  4. Campbell, J.Y. & Perron, P., 1991. "Pitfalls and Opportunities: What Macroeconomics should know about unit roots," Papers 360, Princeton, Department of Economics - Econometric Research Program.
  5. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  6. Bilson, John F. O., 1979. "The deutsche mark/dollar rate : A monetary analysis," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 11(1), pages 59-101, January.
  7. McCallum, Bennett T, 1976. "Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates," Econometrica, Econometric Society, vol. 44(1), pages 43-52, January.
  8. Frenkel, Jacob A, 1976. " A Monetary Approach to the Exchange Rate: Doctrinal Aspects and Empirical Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 200-224.
  9. Ogaki, Masao & Park, Joon Y., 1997. "A cointegration approach to estimating preference parameters," Journal of Econometrics, Elsevier, vol. 82(1), pages 107-134.
  10. Inder, Brett, 1993. "Estimating long-run relationships in economics : A comparison of different approaches," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 53-68.
  11. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
  12. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  13. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  14. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
  15. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  16. Andrews, Donald W K, 1991. "Heteroskedasticity and Autocorrelation Consistent Covariance Matrix Estimation," Econometrica, Econometric Society, vol. 59(3), pages 817-58, May.
  17. Allan W. Gregory, 1991. "Testing for Cointegration in Linear Quadratic Models," Working Papers 811, Queen's University, Department of Economics.
  18. Jean Mercenier & Khalid Sekkat, 1988. "Money stock targeting and money supply: an intertemporal optimization approach, with an application to Canada," ULB Institutional Repository 2013/7304, ULB -- Universite Libre de Bruxelles.
  19. Gregogy, A.W. & Pagan, A.R. & Smith, G.W., 1990. "Estimating Linear Quadratic Models With Integrated Processes," RCER Working Papers 247, University of Rochester - Center for Economic Research (RCER).
  20. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
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Cited by:
  1. Jeff M. Rogers & Pierre Siklos, 2001. "Foreign Exchange Market Intervention in Two Small Open Economies: The Canadian and Australian Experience," Research Paper Series 57, Quantitative Finance Research Centre, University of Technology, Sydney.

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