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Does the Canadian economy suffer from Dutch Disease?

  • Michel Beine
  • Charles Bos
  • Serge Coulombe

    ()

    (CREA, University of Luxembourg)

We argue that the failure to disentangle the evolution of the Canadian currency and energy and commodity prices from the US currency leads to potential wrong conclusions regarding the case of a Dutch disease in Canada. We propose a new approach aimed at extracting currency components and energy and commodity prices components from observed exchange rates and prices. Then, we analyze first the separate influence of commodity prices on the Canadian and the US currency component. Second, we estimate the separate impact of the two currency components on the shares of manufacturing employment in Canada. We show that 54 percent of the manufacturing employment loss due to exchange rate development between 2002 and 2007 are related to a Dutch disease phenomenon. The remaining 46 percent can be ascribed to the weakness of the US currency.

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Paper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 09-06.

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Date of creation: 2009
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Handle: RePEc:luc:wpaper:09-06
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