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The failure of the monetary exchange rate model for the Canadian-U.S. dollar

  • David O. Cushman

In this paper the validity of the monetary exchange rate model in the long run for the Canadian-U.S. dollar exchange rate is examined. The primary test employed is the Johansen (1991) and Johansen and Juselius (1990) cointegration technique. The effects of dummy variables and lag specification on the statistical inference are considered, and Monte Carlo simulations based on the estimated parameters are employed. Despite the use of the longest data set yet for the Canadian case, no evidence is found in favour of the monetary exchange rate model using the Johansen procedures. This result is confirmed by several other cointegration procedures.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 33 (2000)
Issue (Month): 3 (August)
Pages: 591-603

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Handle: RePEc:cje:issued:v:33:y:2000:i:3:p:591-603
Contact details of provider: Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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  17. Lucas, R.F. & Haug, A.A., 1992. "Long-Run Money Demand in Canada: In Search of Stability," Papers 92-4, Saskatchewan - Department of Economics.
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