The monetary approach to exchange rates and the behaviour of the Canadian dollar over the long run

Abstract

Using Canadian-US dollar data this paper examines the question of whether recent positive findings with regard to purchasing power parity carry over to the monetary approach to exchange rates. The evidence provides strong support for the long-run monetary model of exchange rates. At the same time, it provides indirect evidence in favour of long-run purchasing power parity between the US dollar and the Canadian dollar during the sample period.