Effects of Canadian Exchange Rate Volatility on Imports and Exports

This empirical study examines effects of Canadian exchange rate volatility on total exports, exports to the USA, total imports, and imports from the USA Results lead to conclude that exchange rate volatility is cointegrated with total exports, exports to the USA, total imports, and imports from the USA. Further results indicate that exchange rate volatility has a significant inverse long run relationship with total exports, exports to the USA, and total imports, but an insignificant inverse relationship with imports from the USA. Findings of the current study have very important implications for policymakers to design such macroeconomic policies that can lead to establishing long run equilibrium relationship between exchange rate volatility, exports and imports adjusting short term trade deficit shocks to avoid violation of international budget constraints. Further, empirical research work can be conducted to examine the impact of Canadian dollar exchange rate volatility on exports and import with Euro-zone, UK, China, and Australia. Additionally, studies can also be undertaken to investigate the exchange rate volatility effects on exports and imports of developed and developing countries.