US debt ratio drives international exchange rates: Bank of Canada
International exchange rates are driven to a very large extent by the debt-to-output ratio in the US and changes in commodity prices, research published by the Bank of Canada on Tuesday reveals.
The authors take six quarterly bilateral dollar exchange rates- with the Australian dollar, the Canadian dollar, the euro, the yen, the kiwi dollar and sterling- and put them through a dynamic factor model, which shows that the US debt ratio and commodity prices are the two factors all have in common
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