A cointegration analysis of Canadian wood pulp prices

The effects of the Canada-U.S. exchange rate, the U.S. pulp price, and the domestic use of pulp on the Canadian pulp price are investigated using a cointegration analysis. Results suggest that the U.S. pulp price is more important than other variables in determining the price of pulp in Canada. The incomplete pass-through of the exchange rate indicates that Canadian pulp producers may not have market power to increase their price of pulp. The temporary increase in the price of Canadian pulp in response to a devaluation of the Canadian dollar may be due to short-term contracts which Canadian pulp producers have with their importers.