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A Further Analysis of Exchange Rate Targeting in Canada

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In a recent paper Mercenier and Sekkat (1988) conclude that the Bank of Canada has followed a policy of exchange rate targeting using the money supply. We re-examine their results using a different estimation approach and with different assumptions about the forcing process of the exogenous variables. We also extend the sample period to include more recent observations. While we find some weak evidence to support their conclusion, the results, in general, suggest that the Bank of Canada has not used the money supply to target the Canada-U.S. exchange rate.

Also published as:

Journal of Applied Econometrics (0883-7252)
January-February 1996. Vol. 11, No. 1, pp. 93-104

Topic(s): Exchange rates