In the comments to a recent post, James in London asked:
“Does Canada fit, or at least partly fit, the Russia described in Lars’ post today? 25% of exports are energy products (oil and LPG), and then a lot of the rest are raw or nearly raw materials.”
The chart below plots two important developed commodity exporting countries, Canada and Australia.
I believe Australia provides a much better ‘fit’ to the EPN (in this case commodity price norm) than Canada.
Just take the last couple of years. While Australia has clearly tightened monetary policy, bringing NGDP back towards the trend, which it surpassed in 2005-08 when it pursued a ‘loose’ monetary policy; Canada´s exchange rate has moved in tandem with commodity prices, but from the behavior of NGDP we figure that monetary policy has been excessively tight.
So, although Canada has been following closely the EPN, this has not been enough to keep NGDP close (or moving) to trend. Maybe my ‘country specialists’ readers would like to weigh in.
Additional information: House Prices (HPI)