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The impact of world oil price shocks on the Canada/U.S. real exchange rate

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  • Jing Zhao
  • Savannah Wei Shi

Abstract

This article investigates whether and how changes in the world oil price affect the Canada/U.S. real exchange rate. We applied vector autoregression and vector error correction models for the real exchange rate, world oil price, monetary differential, government spending, and productivity differential between the two countries. Our results demonstrate that a surge in the world oil price will lead to an appreciation of the Canadian dollar in the short and long term. Product differentials and U.S. government spending have a negative impact on the Canada/U.S. real exchange rate, and Canadian government spending leads to a depreciation of the Canadian dollar.

Suggested Citation

  • Jing Zhao & Savannah Wei Shi, 2018. "The impact of world oil price shocks on the Canada/U.S. real exchange rate," The International Trade Journal, Taylor & Francis Journals, vol. 32(4), pages 343-362, August.
    • Handle: RePEc:taf:uitjxx:v:32:y:2018:i:4:p:343-362
    DOI: 10.1080/08853908.2017.1414002
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    Cited by:

    1. Moghaddam, Mohsen Bakhshi, 2023. "The relationship between oil price changes and economic growth in Canadian provinces: Evidence from a quantile-on-quantile approach," Energy Economics, Elsevier, vol. 125(C).
    2. Jung, Young Cheol & Das, Anupam & McFarlane, Adian, 2020. "The asymmetric relationship between the oil price and the US-Canada exchange rate," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 198-206.

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