IDEAS home Printed from https://ideas.repec.org/p/bca/bocadp/08-15.html
   My bibliography  Save this paper

The Canadian Dollar and Commodity Prices: Has the Relationship Changed over Time?

Author

Listed:
  • Philipp Maier
  • Brian DePratto

Abstract

The authors examine the impact of the recent run-up in energy and non-energy commodity prices on the Canadian dollar. Using the Bank of Canada's exchange rate equation, they find that the differences between the actual value of the Canadian exchange rate and the simulated values observed in 2007 are not historically large. Still, given that there is some evidence that the sensitivity of the standard exchange rate equation to changes in energy and non-energy commodities may have changed over time, the authors explore different ways of modelling the impact of energy and non-energy commodity prices. Their results indicate that specifications that explicitly consider the importance of energy and non-energy commodities in Canada's export or production basket may yield more stable coefficient estimates, particularly over recent periods. Future research should investigate the robustness of these findings, particularly if, at some point, price increases for energy and non-energy commodities were to moderate.

Suggested Citation

  • Philipp Maier & Brian DePratto, 2008. "The Canadian Dollar and Commodity Prices: Has the Relationship Changed over Time?," Discussion Papers 08-15, Bank of Canada.
  • Handle: RePEc:bca:bocadp:08-15
    as

    Download full text from publisher

    File URL: http://www.bankofcanada.ca/en/res/dp/2008/dp08-15.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Kato, Ryo & Nishiyama, Shin-Ichi, 2005. "Optimal monetary policy when interest rates are bounded at zero," Journal of Economic Dynamics and Control, Elsevier, pages 97-133.
    2. Reifschneider, David & Willams, John C, 2000. "Three Lessons for Monetary Policy in a Low-Inflation Era," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 936-966, November.
    3. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, pages 255-269.
    4. Efrem Castelnuovo, 2006. "Describing The Fed’S Conduct With Taylor Rules: Is Interest Rate Smoothing Important?," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 57-77, August.
    5. Coenen Günter & Orphanides Athanasios & Wieland Volker, 2004. "Price Stability and Monetary Policy Effectiveness when Nominal Interest Rates are Bounded at Zero," The B.E. Journal of Macroeconomics, De Gruyter, pages 1-25.
    6. Jeffrey C. Fuhrer & Brian F. Madigan, 1997. "Monetary Policy When Interest Rates Are Bounded At Zero," The Review of Economics and Statistics, MIT Press, pages 573-585.
    7. Bernard Babineau & Claude Lavoie & Nicolas Moreau, "undated". "Risques et conséquences d’atteindre la borne inférieure du taux d’intérêt nominal de court terme," Working Papers-Department of Finance Canada 2001-22, Department of Finance Canada.
    8. David L. Reifschneider & John C. Williams, 2000. "Three lessons for monetary policy in a low-inflation era," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 936-978.
    9. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 139-235.
    10. David L. Reifschneider & John C. Williams, 2000. "Three lessons for monetary policy in a low-inflation era," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, pages 936-978.
    11. Summers, Lawrence, 1991. "How Should Long-Term Monetary Policy Be Determined? Panel Discussion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 625-631, August.
    12. Stephen Murchison & Andrew Rennison, 2006. "ToTEM: The Bank of Canada's New Quarterly Projection Model," Technical Reports 97, Bank of Canada.
    13. Alexander L. Wolman, 1998. "Staggered price setting and the zero bound on nominal interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-24.
    14. Jean-Philippe Cayen & Amy Corbett & Patrick Perrier, 2006. "An Optimized Monetary Policy Rule for ToTEM," Staff Working Papers 06-41, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Beine, Michel & Bos, Charles S. & Coulombe, Serge, 2012. "Does the Canadian economy suffer from Dutch disease?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 468-492.
    2. Vasishtha, Garima & Maier, Philipp, 2013. "The impact of the global business cycle on small open economies: A FAVAR approach for Canada," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 191-207.
    3. Domenico Ferraro & Kenneth S. Rogoff & Barbara Rossi, 2011. "Can oil prices forecast exchange rates?," Working Papers 11-34, Federal Reserve Bank of Philadelphia.
    4. Mohamed BELHEDI & Ines SLAMA & Amine LAHIANI, 2015. "Tranmission Of International Shocks To An Emerging Small Open-Economy: Evidence From Tunisia," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 42, pages 231-258.
    5. Ferraro, Domenico & Rogoff, Kenneth & Rossi, Barbara, 2015. "Can oil prices forecast exchange rates? An empirical analysis of the relationship between commodity prices and exchange rates," Journal of International Money and Finance, Elsevier, vol. 54(C), pages 116-141.
    6. Christopher Ragan, "undated". "The Seductive Myth of Canada’s “Overvalued” Dollar," e-briefs 158, C.D. Howe Institute.

    More about this item

    Keywords

    Exchange rates;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocadp:08-15. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://www.bank-banque-canada.ca/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.