Degree Name

Master of Arts (MA)

Semester of Degree Completion

2018

Thesis Director

Ahmed S. Abou-Zaid

Abstract

This paper investigates the degree of exchange rate and oil prices pass-through to import prices, producer prices, and consumer prices in Canada and United States over the period from 1980 to 2017 using a Structural Vector Auto-Regression (SVAR) model. The results indicate a robust evidence of a positive long-run correlation between exchange rate & oil prices and aggregate price levels. Impulse response function reveals a persistent and incomplete pass-through for both exchange rates and oil prices i.e. 0.20 and 0.04 for Canada and 0.27 and 0.25 for the U.S. That is, greater pass-through exist in an economy which has a more oil import share, more volatile monetary policy, and higher inflation rate. Consistent with impulse response function, variance decomposition reveals that oil price shocks in the United States are the major cause of the variation in the import prices and producer prices, while exchange rate fluctuations explain more of the variation in consumer prices. However, in Canada, import prices are mainly explained by exchange rate fluctuations, while oil price shocks explain the variation in producer and consumer prices.

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