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      Error correction model estimation of the Canada-US real exchange rate

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      DongmeiYe3.pdf (834.1Kb)
      Date
      2007
      Author
      Ye, Dongmei
      Type
      Thesis
      Degree Level
      Masters
      Metadata
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      Abstract
      Using the error correction model, we link the long-run behavior of the Canada-US real exchange rate to its short-run dynamics. The equilibrium real exchange rate is determined by the energy and non-energy commodity prices over the period 1973Q1-1992Q1. However such a single long-run relationship does not hold when the sample period is extended to 2004Q4. This breakdown can be explained by the break point which we find at 1993Q3. At the break point, the effect of the energy price shocks on Canada’s real exchange rate turns from negative to positive while the effect of the non-energy commodity price shocks is constantly positive. We find that after one year 40.03% of the gap between the actual and equilibrium real exchange rate is closed. The Canada-US interest rate differential affects the real exchange rate temporarily. The Canada’s real exchange rate depreciates immediately after a decrease in Canada’s interest rate and appreciates next quarter but not by as much as it has depreciated.
      Degree
      Master of Arts (M.A.)
      Department
      Economics
      Program
      Economics
      Supervisor
      Lucas, Robert F.
      Copyright Date
      2007
      URI
      http://hdl.handle.net/10388/etd-01032008-220745
      Subject
      Macroeconomics
      Error correction model
      Canada-US real exchange rate
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      • Graduate Theses and Dissertations
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