The Canadian lumber industry and the macroeconomy: a vector autoregression analysis

The nature of the relationships between the Canadian lumber industry and the macroeconomy are investigated by estimating a 10-variable, three-lag vector autoregressive model for the period 1968 to 1987. We find that housing-start activity in North America has a prolonged and significant effect on the level of Canadian lumber production, exports, and prices. However, our results do not support the existence of strong exchange and interest-rate effects in the lumber sector. The use of general equilibrium specifications in forest sector modeling is suggested by the analysis. We explore the robustness of our results to alternate model specification and estimation procedures and identify problems that merit further investigation.