The Share of Systematic Variations in the Canadian Dollar—Part III

We draw a parallel between the dramatic increases of systematic variations in exchange rates and international bank lending. We find that when a country’s currency has a larger share of systematic variations, lending flows by international banks to that country become more sensitive to global lending – they also become more systematic. This parallel is particularly prevalent for large commodity exporters, including Canada. Global financial intermediation may open a new channel between the real economy and exchange rates.This article was first published on www.BankofCanada.ca