The great Canadian slump: a rejoinder to Freedman and Macklem
AbstractIn this rejoinder the key role played by high interest rates in the Canadian economic and fiscal crisis of 1990-96 is reaffirmed. I argue that (i) important econometric biases could have led many to underestimate the effects of high interest rates on output; (ii) it is imprudent to conduct monetary policy as if the long-run Phillips curve was sure to be vertical at very low inflation rates; (iii) supply-side explanations of the Canadian slump of the 1990s are hard to reconcile with existing macroeconomic evidence; and (iv) during sustained slumps, popular smoothing techniques lead to substantial underestimates of potential output and the structural fiscal balance.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 32 (1999)
Issue (Month): 4 (August)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
Web page: http://economics.ca/cje/
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- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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