The Canadian-US dollar exchange rate: A test of alternative models for the seventies

Three basic models of bilateral exchange-rate determination are evaluated on the basis of the Canadian experience in the 1970s. We examine wealth effects and incorporate consistent expectations in the traditional models. Based on reduced-form equations, empirical results reject a simple monetary approach and the stickly-price asset market model but concur with a version of the stock-flow model of exchange-rate determination.