The international transmission mechanism works through the effect of the Canadian interest-rate differential on the value of the Canadian dollar.

Question

Quizplus · Accepted Answer

The international transmission mechanism works through various channels, but one of the important channels is the effect of the Canadian interest-rate differential on the value of the Canadian dollar. When Canadian interest rates are higher than those in other countries, it attracts foreign investors to invest in Canada, which in turn increases the demand for the Canadian dollar, leading to an appreciation in its value. On the other hand, when Canadian interest rates are lower than those in other countries, it reduces the attractiveness of Canadian investments, leading to a decrease in demand for the Canadian dollar, causing its value to depreciate.

The International Transmission Mechanism Works Through the Effect of the Canadian