Delayed reactions to exchange rate changes in trade on current account
balances are known to exist in both the United States and Canada. A m
odel has been constructed to estimate relative price effects for trade
with major partners in order to determine the quantitative magnitudes
and relevant time delays for both countries' adjustments in trade acc
ounts. There is a distinct tendency for balances to worsen when exchan
ge depreciation first occurs and then to improve. After several quarte
rs have passed, there is also a tendency for the balances to worsen ag
ain. The U.S. and Canadian time profiles of adjustment are found to be
similar.