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Real-Financial Linkages In The Canadian Economy: An Input--Output Approach

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  • Danny Leung
  • Oana Secrieru

Abstract

The recent financial crisis highlighted the importance of better understanding the interaction between macroeconomic and financial conditions. In this paper, we provide a financial social accounting matrix for the Canadian economy and use it to assess the strength of real-financial linkages by calculating and comparing multipliers with and without endogenous financial flows. It is found that taking into account financial flows increases the impact of a final demand shock on output by 4--11%. Moreover, between 2008 and 2009H1, the investment decisions of financial institutions together with the fact that non-financial institutions were unwilling or unable to increase their financial liabilities led to estimated declines in all GDP multipliers. The impact of a final demand shock on GDP declined 3--5%, while the impact of an increase in the availability of investment funds fell 30% and 55% for financial and non-financial corporations, respectively.† -super-†The views expressed in this paper are those of the authors. No responsibility for them should be attributed to Statistics Canada.

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File URL: http://hdl.handle.net/10.1080/09535314.2012.684345
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Economic Systems Research.

Volume (Year): 24 (2012)
Issue (Month): 2 (September)
Pages: 195-223

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Handle: RePEc:taf:ecsysr:v:24:y:2012:i:2:p:195-223

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  1. Thorbecke, Erik & Jung, Hong-Sang, 1996. "A multiplier decomposition method to analyze poverty alleviation," Journal of Development Economics, Elsevier, vol. 48(2), pages 279-300, March.
  2. Rispoli, Luke, 2009. "Trends in Gross Domestic Product and Self-employment of Unincorporated Enterprises in the Canadian Economy, 1987 to 2005," Insights on the Canadian Economy 2009024e, Statistics Canada, Economic Analysis.
  3. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  4. Ian Christensen & Ali Dib, 2008. "The Financial Accelerator in an Estimated New Keynesian Model," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 155-178, January.
  5. Marcel Timmer & Pirkko Aulin-Ahmavaara, 2007. "New Developments in Productivity Analysis within an Input-Output Framework: an Introduction," Economic Systems Research, Taylor & Francis Journals, vol. 19(3), pages 225-227.
  6. Brian Wixted & Norihiko Yamano & Colin Webb, 2006. "Input-Output Analysis in an Increasingly Globalised World: Applications of OECD's Harmonised International Tables," OECD Science, Technology and Industry Working Papers 2006/7, OECD Publishing.
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