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The Great Depression in Canada and the United States: A Neoclassical Perspective

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  • Pedro Amaral

    (University of Minnesota)

  • James C. MacGee

    (Unversity of Minnesota)

Abstract

Canada suffered a major depression from 1929 to 1939. In terms of output, it was similar to the Great Depression in the United States. However, total factor productivity (TFP) in Canada did not recover relative to trend, the in the United States TFP had revered by 1937. We find that the neoclassical growth model, with TFP treated as exogenous, can account for over half of the decline in output relative to trend in Canada. In contrast, we find that conventional explanations for the Great Depression - monetary shocks, terms of trade shocks and labor market and competition policies - do not work for Canada. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1006/redy.2001.0141
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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 5 (2002)
Issue (Month): 1 (January)
Pages: 45-72
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Handle: RePEc:red:issued:v:5:y:2002:i:1:p:45-72

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Keywords: Great Depression; Canada; productivity; terms of trade; deflation;

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References

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  1. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," Working Papers 93-21, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Crucini, M.J. & Kahn, J., 1994. "Tarrifs and Aggregate Economic Activity: Lessons from the Great Depression," RCER Working Papers 383, University of Rochester - Center for Economic Research (RCER).
  3. Harold L. Cole & Lee E. Ohanian, 2001. "Re-Examining the Contributions of Money and Banking Shocks to the U.S. Great Depression," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 183-260 National Bureau of Economic Research, Inc.
  4. Ellen R. McGrattan, 1999. "Predicting the effects of Federal Reserve policy in a sticky-price model: an analytical approach," Working Papers 598, Federal Reserve Bank of Minneapolis.
  5. Michael D. Bordo & Christopher J. Erceg & Charles L. Evans, 1997. "Money, sticky wages, and the Great Depression," Working Paper Series, Macroeconomic Issues WP-97-02, Federal Reserve Bank of Chicago.
  6. Haubrich, Joseph G., 1990. "Nonmonetary effects of financial crises : Lessons from the great depression in Canada," Journal of Monetary Economics, Elsevier, vol. 25(2), pages 223-252, March.
  7. Lee E. Ohanian, 2002. "Why did productivity fall so much during the Great Depression?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
  8. Bernanke, Ben S, 1995. "The Macroeconomics of the Great Depression: A Comparative Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 1-28, February.
  9. Harold L. Cole & Lee E. Ohanian, 2004. "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 779-816, August.
  10. Ben S. Bernanke & Martin L. Parkinson, 1990. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," NBER Working Papers 3503, National Bureau of Economic Research, Inc.
  11. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June.
  12. Michael D. Bordo & Angela Redish, 1990. "Credible Commitment and Exchange Rate Stability: Canada's Interwar Experience," Canadian Journal of Economics, Canadian Economics Association, vol. 23(2), pages 357-80, May.
  13. Harold L. Cole & Lee E. Ohanian, 1999. "The Great Depression in the United States from a neoclassical perspective," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-24.
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Citations

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Cited by:
  1. Edward C. Prescott, 2002. "Prosperity and Depression: 2002 Richard T. Ely Lecture," Working Papers 618, Federal Reserve Bank of Minneapolis.
  2. Harold L. Cole & Lee E. Ohanian & Ron Leung, 2005. "Deflation and the international Great Depression: a productivity puzzle," Staff Report 356, Federal Reserve Bank of Minneapolis.
  3. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2011. "Did Housing Policies Cause the Post-War Boom in Homeownership? A General Equilibrium Analysis," Working Papers 2011-01, Towson University, Department of Economics, revised Feb 2011.
  4. Suparna Chakraborty, 2005. "Technology as a channel of economic growth in India," Macroeconomics 0512013, EconWPA.
  5. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, 05.
  6. Luca Pensieroso, 2007. "Real Business Cycle Models Of The Great Depression: A Critical Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 110-142, 02.
  7. Tasso Adamopoulos, 2008. "Land Inequality and the Transition to Modern Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 257-282, April.
  8. Chakraborty, Suparna, 2008. "Indian Economic Growth: Lessons for the Emerging Economies," Working Papers RP2008/67, World Institute for Development Economic Research (UNU-WIDER).
  9. Mark Weder, 2004. " The Role of Preference Shocks and Capital Utilization in the Great Depression," CDMA Working Paper Series 0405, Centre for Dynamic Macroeconomic Analysis.
  10. Edward C. Prescott, 2002. "Prosperity and Depression," American Economic Review, American Economic Association, vol. 92(2), pages 1-15, May.
  11. Luca, PENSIEROSO, 2007. "The Great Depression in Belgium from a Neo-Classical Perspective," Discussion Papers (ECON - Département des Sciences Economiques) 2007025, Université catholique de Louvain, Département des Sciences Economiques.
  12. Suparna Chakraborty, 2005. "Real Estate Prices, Borrowing Constraints and Business Cycles -A Study of the Japanese Economy," Macroeconomics 0504012, EconWPA.

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