Do exporters of Canadian forest products price to market?

Abstract

Forest products in Canada contribute significantly to the Canadian trade balance. Canadian producers depend heavily on export markets raising the question: how do exchange rate fluctuations impact Canada’s competitiveness in foreign markets? The paper applies a fixed-effects model with individual slopes to investigate this question. Twenty years of monthly data are employed to study the pricing-to-market (PTM) behaviour of Canadian softwood log, lumber and pulp exports as the exchange rate changes. We find a great degree of incomplete exchange rate pass-through, with PTM being apparent for Canadian exporters, particularly in major markets. The export price adjustment tends to mitigate the effect of exchange rate fluctuations on foreign currency prices of Canadian products in most cases. This pricing behaviour reflects exporters’ desire to stabilize their share of the destination market.