A MAXIMUM-LIKELIHOOD COINTEGRATION ANALYSIS OF CANADIAN LUMBER EXPORTS

Johansen's cointegration analysis is used to investigate causal relationships between Canadian lumber exports, U.S. lumber price, U.S. housing starts and the Canada-U.S. exchange rate. The results suggest that there is only one stable equilibrium relationship among these variables in the long run. Forecast error variance decomposition and impulse responses from a vector error-correction model are used to examine the short-run dynamic relationships among the variables. The results suggest significant dynamic relationship among the variables. The results also indicate that the pass-through of exchange rate is incomplete in the long run and that the effects of exchange rate on lumber exports vary between the short run and long run.