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Long-Run Trade Relationship between the U.S. and Canada: The Case of the Canadian Dollar with the U.S. Dollar

Author

Listed:
  • Ikhlaas Gurrib

    (School of Management, Canadian University Dubai, Dubai P.O. Box 117781, United Arab Emirates)

  • Firuz Kamalov

    (Faculty of Engineering, Applied Science and Technology, Canadian University Dubai, Dubai P.O. Box 117781, United Arab Emirates)

  • Osama Atayah

    (School of Management, Canadian University Dubai, Dubai P.O. Box 117781, United Arab Emirates)

  • Dalia Hemdan

    (School of Management, Canadian University Dubai, Dubai P.O. Box 117781, United Arab Emirates)

  • Olga Starkova

    (School of Management, Canadian University Dubai, Dubai P.O. Box 117781, United Arab Emirates)

Abstract

This study investigates the long-run relationship between the U.S. dollar and the Canadian dollar by analyzing the bilateral exchange rate induced by nominal and real shocks. The methodology centers on a structural vector autoregressive (SVAR) model, including the analysis of impulse response and variance decomposition to account for the impact of nominal and real shocks on exchange rate movements. This study also decomposes real shocks into demand and supply factors from both Canada and the U.S. and compares their impacts on the nominal and real exchange rates. The results are compared to shocks driven by country-specific nominal factors. This study uses quarterly data from December 1972 to December 2023. The findings suggest that real shocks have a permanent impact on both the nominal and real exchange rates, compared to nominal shocks, which have a temporary impact. Country-specific real supply-side factors have a more significant impact than country-specific real demand-side factors. Country-specific nominal factors barely impacted the nominal and real exchange rates between the U.S. and Canada.

Suggested Citation

  • Ikhlaas Gurrib & Firuz Kamalov & Osama Atayah & Dalia Hemdan & Olga Starkova, 2024. "Long-Run Trade Relationship between the U.S. and Canada: The Case of the Canadian Dollar with the U.S. Dollar," JRFM, MDPI, vol. 17(9), pages 1-21, September.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:9:p:411-:d:1478842
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    References listed on IDEAS

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