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The great Canadian slump: a rejoinder to Freedman and Macklem

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  • Pierre Fortin
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    Abstract

    In 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 Info

    Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

    Volume (Year): 32 (1999)
    Issue (Month): 4 (August)
    Pages: 1082-1092

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    Handle: RePEc:cje:issued:v:32:y:1999:i:4:p:1082-1092

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    Cited by:
    1. Elizabeth C. Wakerly & Byron G. Scott & James M. Nason, 2004. "Common trends and common cycles in Canada: who knew so much has been going on?," Working Paper 2004-5, Federal Reserve Bank of Atlanta.
    2. Lin, Zhengxi & Osberg, Lars, 2000. "How Much of Canada's Unemployment Is Structural?," Analytical Studies Branch Research Paper Series 2000145e, Statistics Canada, Analytical Studies Branch.
    3. Mardi Dungey & John Pitchford, 2001. "An Empirical Analysis of the Effect of Growth on Inflation, Australia, Canada and the United States," CEPR Discussion Papers 438, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    4. Rafael Gomez & David K. Foot, 2003. "Age Structure, Income Distribution and Economic Growth," Canadian Public Policy, University of Toronto Press, vol. 29(s1), pages 141-162, January.
    5. Ron Kneebone & John Leach, 2001. "The Accumulation of Public Debt in Canada," Canadian Public Policy, University of Toronto Press, vol. 27(3), pages 297-312, September.

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