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A Further Analysis of Exchange Rate Targeting in Canada

  • Robert A. Amano

    (Bank of Canada)

  • Tony S. Wirjanto

    (University of Waterloo)

In a recent paper Mercenier and Sekkat (1988) conclude that the Bank of Canada has followed a policy of exchange rate targeting using the money supply. We reexamine their results using a different estimation approach and with different assumptions about the forcing process of the exogenous variables. We also extend the sample period to include more recent observations. While we find some weak evidence to support their conclusion, the results, in general, suggest that the Bank of Canada has not used the money supply to target the Canada-U.S. exchange rate. Dans une etude publiee en 1988, Mercenier et Sekkat ont conclu que la Banque du Canada avait des objectifs en matiere de taux de change qu'elle cherchait a atteindre en influant sur la masse monetaire. Les auteurs de la presente etude reexaminent les resultats obtenus par Mercenier et Sekkat en mettant a contribution une methode d'estimation differente et en faisant d'autres types d'hypotheses au sujet du processus de dynamisation des variables exogenes. Ils retiennent aussi une periode d'estimation plus longue de maniere a tenir compte d'observations plus recentes. Les resultats empiriques confirment dans une tres faible mesure la these de Mercenier et Sekkat, mais ils indiquent, de maniere generale, que la Banque du Canada ne s'est pas servie de la masse monetaire dans la poursuite d'un taux de change cible du dollar canadien par rapport au dollar americain.

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Paper provided by Bank of Canada in its series Staff Working Papers with number 94-2.

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Handle: RePEc:bca:bocawp:94-2
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