THE IMPACT OF AUTOMOTIVE TRADE ON THE CANADIAN EXCHANGE RATE

by
JEREMEY PONRAJAH

A MRP
presented to Ryerson University
in partial fulfillment of the
requirements for the degree of
Master of Arts
In the Program of
International Economics and Finance

Toronto, Ontario, Canada, 2016

Jeremey Ponrajah, 2016

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THE IMPACT OF AUTOMOTIVE TRADE ON THE CANADIAN EXCHANGE RATE

Jeremey Ponrajah
Master of Arts in International Economics and Finance
Ryerson University, 2016
ABSTRACT
This paper uses a Markov switching framework to investigate the impact of oil shocks and
automotive trade on the Canadian-US exchange rate. This is an important topic because the Canadian
economy relies heavily on both automotive and crude oil exports to the US. We detect a significant
appreciation in Canadian exchange rate after an oil demand shock. We find inconclusive evidence that
oil supply shocks affect the Canadian exchange rate. We display that oil demand shocks due to
speculation lead to two different levels of appreciation in the Canadian currency. We find strong
evidence that increases the percentage change in net Canadian automotive exports lead to an
appreciation in the Canadian currency relative to the US. The results provide evidence to support the
presence of a non-linear relationship between the effects of oil price shocks and automotive trade on
the Canadian exchange rate.

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Acknowledgements
I would like acknowledge the indispensable feedback I received from both Dr. Cathy Ning
and Dr. Maurice Roche in helping me complete this paper.

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Dedication
To my family and friends

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