The Canadian dollar (C$) has been overvalued and dragging on economic growth over the past several years, suggests a new report from CIBC World Markets Inc.

Although the drop in oil prices has brought down the value of the dollar in recent months, “our currency is still richer than it may look,” write the report’s authors, Nick Exarhos, economist, and Avery Shenfeld, managing director and chief economist.

The authors have constructed a regression model that incorporates various prices and interest-rate spreads to estimate a fair value for the loonie based on its historical relationship with underlying drivers of that value. On average, that model suggests that the C$ has been about 9.5% overvalued since the beginning of 2009.

This model also implies that monetary policy is tighter than it may appear, the authors note. They suggest that the overvaluation of the loonie equates to monetary conditions being about 90 basis points tighter than the actual Bank of Canada overnight rate indicates.

“Careful analysis of macro linkages suggests that, when adjusted for the deterioration in trade fundamentals and rate spreads, the currency is posing a meaningful drag on growth,” the report states. “That’s tantamount to tighter overall monetary conditions than are conveyed by looking at interest rates in isolation.”

In the months ahead, overall monetary conditions should be brought into better alignment as the U.S. Federal Reserve Board hikes its interest rates, and the BoC leaves rates unchanged, the report states, “allowing the loonie to stay grounded even as oil recovers.”

The report adds: “In an effort to keep the [C$] trading well beneath parity, while at the same time counteracting the implied effects on monetary policy that the currency has provided, expect the [BoC] to be much more patient than the Fed, with short end rate spreads between the two nations closing. A less turbulent global environment, along with the elimination of the short rate advantage, will cause the premium placed on the [C$] to also narrow significantly by the end of 2016.”