How Sensitive is U.S.-Canadian Trade to the Exchange Rate: Evidence from Industry Data |
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Authors: | Mohsen Bahmani-Oskooee Marzieh Bolhasani |
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Institution: | (1) Center for Research on International Economics and the Department of Economics, University of Wisconsin-Milwaukee, Milwaukee, WI, USA;(2) Department of Economics, University of Wisconsin-Sheboygan, Sheboygan, WI, USA |
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Abstract: | Previous research has followed four distinct paths to investigate the impact of currency depreciation on the trade balance
of a country, using mostly aggregate trade data. In this paper we choose one of those paths and consider the trade between
the U.S. and Canada. However, unlike previous research we disaggregate the trade data between the two countries by commodity
and consider 152 industries that trade. After estimating inpayment and outpayment schedules for all 152 industries, we find
that real depreciation has short-run effects on inpayments of 72 and outpayments of 53 industries. However, the short-run
effects translate into the long-run effects only in 43 of inpayment models and 36 of outpayment models. Further analysis reveals
that 1% real depreciation of the U.S. dollar has 1.29% positive effects on the U.S. net export earnings. |
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