Uncovered Interest Parity and Long-Run Money Demand in Canada and the U.S.

Abstract

This paper presents substantial evidence in support of the existence oflongrun money demand functions and uncovered interest parity in Canada and the U.S. using quarterly data from 1950 to 1996. We also uncover evidence ofcross-country influences running not only from the U.S. to Canada, but, also, from Canada to the U.S. Our approach offers advantages over other attempts to assess these phenomena by analyzing them as part ofa system and by allowing for differing short- and long-run dynamics in the system. (E4 I, C32)