Under a flexible exchange rate regime, the Canadian economy is constantly affected by fluctuations in exchange rates. This paper focuses on the effect of the exchange rate on employment in Canada. We find that appreciation of the Canadian dollar has significant effects on employment in manufacturing industries; such effects are mostly associated with the export-weighted exchange rate, but not the import-weighted exchange rate. Meanwhile, the exchange rate has little effect on jobs in non-manufacturing industries. Because the manufacturing sector accounts for only about 10 percent of employment in Canada, the overall effect of the exchange rate on employment is small. In addition, we quantify the loss of manufacturing employment associated with a commodity market boom, during which the Canadian dollar tends to appreciate. Our estimates suggest that when commodity prices increase by 15.77 percent (one standard deviation of annual change in commodity prices between 1994 and 2010), manufacturing employment in Canada decreases by 0.8 percent, which is about 0.08 percent of the total employment.Keywords: exchange rate, employment in Canada Comme le taux de change de la devise canadienne est flottant, l'économie canadienne est constamment influencée par les fluctuations des taux de change. Dans cet article, nous analysons l'effet des variations du taux de change sur l'emploi au Canada. Nous montrons qu'une appréciation du dollar canadien a des effets importants sur l'emploi dans l'industrie manufacturière, et que ces effets sont surtout associés au taux de change pondéré en fonction des exportations (ils ne sont pas associés au taux de change pondéré en fonction des importations). De plus, le taux de change a peu d'effet sur l'emploi dans les industries non manufacturières. Comme le secteur manufacturier ne compte que pour 10 % de l'emploi au Canada, l'effet du taux de change sur l'emploi total est donc faible. Par ailleurs, nous quantifions les pertes d'emplois dans le secteur manufacturier dans le cas en présence d'un boom du marché des produits de base, pendant lequel le dollar canadien a tendance à s'apprécier. Nos estimations indiquent que, quand les prix des produits de base augmentent de 15,77 % (un écart-type des fluctuations des prix des produits de base entre 1994 et 2010), l'emploi dans le secteur manufacturier décroît de 0,8 %, ce qui correspond à peu près à 0,08 % de l'emploi total.Mots clés : taux de change, l'emploi au Canada

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We compare the welfare of different combinations of monetary and currency policies in an open-economy macroeconomic model that incorporates two important features of many small economies: a high level of vertical international trade and a prevalent use of a large trade partner's currency as the invoicing currency for both imports and exports. In this environment, a small economy prefers a fixed exchange rate regime over a flexible regime, while the larger economy prefers a flexible exchange rate regime. There are two main causes underlying our results. First, in the presence of sticky prices, relative prices adjust through changes in the exchange rate. Multiple stages of production and trade make it more difficult for one exchange rate to balance the whole economy by adjusting several relative prices throughout the vertical chain of production and trade.Namely, there is a trade-off between delivering an efficient relative price between home and foreign final goods and delivering an efficient relative price between home and foreign intermediate goods.Second, because the small economy uses the larger economy's currency in trade, it faces a high degree of exchange rate pass-through under a flexible regime and hence suffers from the lack of efficient relative prices in vertical trade. The larger economy, however, does not face this problem because its level of exchange rate pass-through is low. JEL classification: F3, F4

Extremely Preliminary1 Devereux and Lahiri would like to thank SSHRC for research support. AbstractThe rising current account deficit in the USA has attracted considerable attention in recent years.We use the "business cycle accounting" methodology to identify the principal distortions that have affected the external accounts of the US. In particular, we measure distortions in the optimality conditions of a simple two-country general equilibrium model using data from the US and the other G7 countries. We then feed these measured distortions into the model individually and use the simulated counterfactual paths of the current account to determine the contribution of each of these "wedges" to the overall external imbalance of the USA. We find that no single wedge in isolation can account closely for the observed current account. However, a combination of productivity differences and deviations from risk-sharing between the US and the rest of the G7 does the best job in accounting for most of the measured movement of the US current account.In the last five years the international macroeconomics literature has become increasingly concerned with global current account imbalances, with particular focus on the size and persistence of the US current account deficit. There is some irony here, given that until recently one of the greater challenges facing the profession was to provide a coherent explanation of the Feldstein-Horioka puzzle, which noted that current account imbalances were of a far smaller magnitude than theory

Relying on quarterly data since 1998 we estimate, for China and the U.S., small scale econometric models that economize on the number of variables employed and yet are rich enough to provide useful insights about spillover effects between the two countries under different maintained assumptions about the exogeneity of the macroeconomic relationship between them. We conclude that inflation in China responds to credit shocks. Indeed, the monetary transmission mechanism in China resembles that of the US even if the channels through which monetary policy affects their respective economies differ. We also find that the monetary policy stance of the PBOC was helpful in mitigating the impact of the global financial crisis of 2008-9. Finally, spillovers from the US to China are significant and originate from both through the real and financial sectors of the US economy.