Does the Canadian economy suffer from Dutch disease?

We argue that the failure to disentangle the evolution of the Canadian
currency from the U.S. currency leads to potentially incorrect
conclusions regarding the case of Dutch disease in Canada. We propose
a new approach that is aimed at extracting both currency
components and energy- and commodity-price components from
observed exchange rates and prices. We first analyze the separate
influence of commodity prices on the Canadian and the U.S. currency
components. We then estimate the separate impact of the
two currency components on the shares of manufacturing employment
in Canada. We show that between 33 and 39 per cent of the
manufacturing employment loss that was due to exchange rate
developments between 2002 and 2007 is related to the Dutch disease
phenomenon. The remaining proportion of the employment
loss can be ascribed to the weakness of the U.S.