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A Foreign Activity Measure for Predicting Canadian Exports

Author

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  • Louis Morel

Abstract

The author constructs a measure of foreign activity that takes into account the composition of foreign demand for Canadian exports. It has a number of interesting features. First, the foreign activity measure captures both the composition of demand in the United States (by including components of U.S. private final domestic demand) and economic activity outside of the United States. Second, its coefficients have been estimated over the sample period 1981–2009 controlling for the effect of changes in relative prices. Third, compared with the Bank’s previous U.S. activity index (introduced in the July 2009 Monetary Policy Report), the foreign activity measure provides some improvements for forecasting Canadian exports, especially at longer horizons. For instance, at eight quarters ahead, the gain in terms of forecast accuracy is as much as 22 per cent. Finally, the foreign activity measure helps to explain why Canadian exports dropped by 20 per cent during the global recession of 2008–09 and have only partially recovered since that time.

Suggested Citation

  • Louis Morel, 2012. "A Foreign Activity Measure for Predicting Canadian Exports," Discussion Papers 12-1, Bank of Canada.
  • Handle: RePEc:bca:bocadp:12-1
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    Cited by:

    1. Martin Coiteux & Patrick Rizzetto & Lena Suchanek & Jane Voll, 2014. "Why Do Canadian Firms Invest and Operate Abroad? Implications for Canadian Exports," Discussion Papers 14-7, Bank of Canada.
    2. Russell Barnett & Karyne B. Charbonneau, 2015. "Decomposing Movements in U.S. Non-Energy Import Market Shares," Discussion Papers 15-5, Bank of Canada.
    3. André Binette & Daniel de Munnik & Julie Melanson, 2015. "An Update - Canadian Non-Energy Exports: Past Performance and Future Prospects," Discussion Papers 15-10, Bank of Canada.

    More about this item

    Keywords

    Balance of payments and components; Exchange rates; Recent economic and financial developments;

    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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