@article{Experience:4251,
      recid = {4251},
      author = {Freedman, Charles and Longworth, David},
      title = {Some Aspects of the Canadian Experience with Flexible  Exchange Rates in the 1970s},
      publisher = {Bank of Canada},
      address = {1980},
      pages = {1 online resource (iv, 84 pages)},
      abstract = {In this study the authors examine three aspects of the  Canadian experience with flexible exchange rates in the  1970s: the movements in the Canadian dollar-U.S. dollar  exchange rate, the sharp growth of external borrowings by  Canadians in the 1974-76 period, and the real effects of  relative price movements. Several theoretical and empirical  exchange rate models are found to have done poorly in  explaining the movements of the value of the Canadian  dollar over the decade. In particular, a review of the  literature casts doubt on the efficiency of the exchange  market. Possible reasons for this inefficiency are then  explored. In the examination of external borrowings in the  mid-1970s, it is concluded that there was some response in  borrower and lender behaviour to movements in nominal  long-term interest rate differentials. Four sources of  explanation for such behaviour are examined. It is argued  that there was some inconsistency between the expectation  of the future behaviour of prices incorporated into bond  interest rates, and that incorporated into expected  exchange rates. In addition, some credence is given to the  following ideas: borrowers had not yet completely rejected  exchange rate parity psychology; increases in long-term  interest rates reflected in part increases in real rates of  interest and not solely inflationary premia; and  perceptions as to the absorptive capacity of Canadian  markets affected at least some borrowers. A three-sector  model comprising non-tradable goods, resource-based  tradable goods and non-resource-based tradable goods, is  used to study the effects of changes in raw material  prices, domestic unit labour costs, and the exchange rate  on various real variables in the Canadian economy. These  variables include the ratio of output in resource-based  industry to output in non-resource-based industry, the  ratio of output in the tradable goods industries to output  in the non-tradable goods sector, the real merchandise  trade balance, the share of corporate profits in GNP, and  business fixed investment. Relative prices are found to  have significant impacts on most of these variables.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/4251},
      doi = {https://doi.org/10.34989/tr-20},
}