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Exchange Rate Fluctuations and Labour Market Adjustments in Canadian Manufacturing Industries

  • Gabriel Bruneau
  • Kevin Moran

We estimate the impact of exchange rate fluctuations and other external factors on hours worked and employment in Canada’s manufacturing industries. The analysis is based on a dynamic model of labour demand and the econometric strategy employs a dynamic OLS approach for cointegrating regressions. Our data is drawn from a panel of 20 manufacturing industries, from Statistics Canada’s KLEMS database, and covers a long sample that includes two full cycles of appreciation and depreciation in the value of the Canadian dollar. We find that exchange rate fluctuations have economically and statistically significant effects on the labour choices of Canada’s manufacturing employers, and that these effects are stronger for industries more exposed to trade. In addition, we find that the enactment of NAFTA in 1994 has had a negative impact on labour in manufacturing industries. Finally, we report that employment reacts faster than total hours worked, suggesting that hours worked per employee react in a countercyclical fashion to exchange rate fluctuations.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 1227.

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Date of creation: 2012
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Handle: RePEc:lvl:lacicr:1227
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  1. Chang, Yoosoon & Park, Joon & Song, Kevin, 2002. "Bootstrapping Cointegrating Regressions," Working Papers 2002-04, Rice University, Department of Economics.
  2. Danny Leung & Terence Yuen, 2007. "Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries," Open Economies Review, Springer, vol. 18(2), pages 177-189, April.
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  15. Lafrance, Robert & Osakwe, Patrick & St-Amant, Pierre, 1998. "Evaluating Alternative Measures of the Real Effective Exchange Rate," Working Papers 98-20, Bank of Canada.
  16. Li, Hongyi & Maddala, G. S., 1997. "Bootstrapping cointegrating regressions," Journal of Econometrics, Elsevier, vol. 80(2), pages 297-318, October.
  17. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Wiley Blackwell, vol. 57(1), pages 99-125, January.
  18. Noel Gaston & Daniel Trefler, 1997. "The Labour Market Consequences of the Canada-U.S. Free Trade Agreement," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 18-41, February.
  19. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  20. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  21. Paparoditis, Efstathios & Politis, Dimitris N, 2001. "Unit Root Testing via the Continuous-Path Block Bootstrap," University of California at San Diego, Economics Working Paper Series qt9qb4r775, Department of Economics, UC San Diego.
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  23. Dekle, Robert, 1998. "The yen and Japanese manufacturing employment," Journal of International Money and Finance, Elsevier, vol. 17(5), pages 785-801, October.
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