Regime shifts and the Canada/US exchange rate in a multivariate framework

•This study re-evaluates the monetary approach for the Canada/U.S. exchange rate.•We apply a multivariate Markov-switching vector error correction approach.•The model can be verified but not each coefficient is in line with theory.•Our findings show that different fundamentals matter at different points in time.

This study re-evaluates the monetary approach for the Canada/U.S. exchange rate and shows that its basic structure can be verified although the coefficients are not consistently in line with theory. Our findings also indicate that exchange rate adjustment is subject to regime shifts.