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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.

Suggested Citation

  • Backus, David, 1986. "The Canadian-U.S. Exchange Rate: Evidence from a Vector Autoregression," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 628-637, November.
  • Handle: RePEc:tpr:restat:v:68:y:1986:i:4:p:628-37
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    References listed on IDEAS

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    1. Farber, Henry S & Bazerman, Max H, 1986. "The General Basis of Arbitrator Behavior: An Empirical Analysis of Conventional and Final-Offer Arbitration," Econometrica, Econometric Society, vol. 54(4), pages 819-844, July.
    2. Orley Ashenfelter, 1985. "Evidence on US Experiences with Dispute Resolution Systems," Working Papers 565, Princeton University, Department of Economics, Industrial Relations Section..
    3. Farber, Henry S & Bazerman, Max H, 1986. "The General Basis of Arbitrator Behavior: An Empirical Analysis of Conventional and Final-Offer Arbitration," Econometrica, Econometric Society, vol. 54(6), pages 1503-1528, November.
    4. Max H. Bazerman, 1985. "Norms of Distributive Justice in Interest Arbitration," ILR Review, Cornell University, ILR School, vol. 38(4), pages 558-570, July.
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    Cited by:

    1. Masih, Abul M. M. & Masih, Rumi, 1997. "Can family-planning programs "cause" a significant fertility decline in countries characterized by very low levels of socioeconomic development? New evidence from Bangladesh based on dynamic," Journal of Policy Modeling, Elsevier, vol. 19(4), pages 441-468, August.
    2. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
    3. Kim, Jin-Ock, 1990. "A time series analysis of the real exchange rate movement in Korea," ISU General Staff Papers 1990010108000010378, Iowa State University, Department of Economics.
    4. 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.
    5. repec:kap:iaecre:v:5:y:1999:i:1:p:108-120 is not listed on IDEAS
    6. 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.
    7. George Hondroyiannis & Evangelia Papapetrou, 1999. "Fertility choice and economic growth: Empirical evidence from the U.S," International Advances in Economic Research, Springer;International Atlantic Economic Society, pages 108-120.
    8. Threemonkong, Attapol, 1992. "An intertemporal-optimizing general equilibrium model of exchange rates and external imbalances," ISU General Staff Papers 1992010108000012961, Iowa State University, Department of Economics.
    9. Benjamin Cheng, 1997. "The causality between dollar and pound: An application of cointegration and error-correction modeling," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 21(2), pages 19-26, June.
    10. Ian Coxhead & Agnes Rola & Kwansoo Kim, 2001. "How Do National Markets and Price Policies Affect Land Use at the Forest Margin? Evidence from the Philippines," Land Economics, University of Wisconsin Press, vol. 77(2), pages 250-267.
    11. 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.
    12. Masih, Abul M. M. & Masih, Rumi, 1997. "On the temporal causal relationship between energy consumption, real income, and prices: Some new evidence from Asian-energy dependent NICs Based on a multivariate cointegration/vector error-correctio," Journal of Policy Modeling, Elsevier, vol. 19(4), pages 417-440, August.

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