ASSESSING THE IMPACT OF THE EXCHANGE RATE AND ITS VOLATILITY ON CANADIAN PORK AND LIVE SWINE EXPORTS TO THE UNITED STATES AND JAPAN

A model of a representative Canadian pork exporter is developed to examine the impacts of the exchange rate and its volatility on pork and live swine exports. The pork export supply equation is expressed as a function of the expected level of real exchange rate and a time-varying variance of real exchange rate. An AR(p) model is used to represent the expected real exchange rate, and a GARCH(p, q) model is used to generate the time-varying variance. The same model is used to examine the sensitivity of pork exports to Japan from Canada, the United States, and Denmark. The parameters of all pork and live swine export equations have theoretically consistent signs and many are significant. That is, the domestic price in the exporting country has a negative effect on exports because it is a major input price in the exporter's cost function while the price in the market of destination has a positive effect. The level of the exchange rate has a positive impact on pork exports while the volatility of the exchange rate has a negative impact. Most of the volatility parameters are not significant.