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Driving Forces of the Canadian Economy: An Accounting Exercise

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Author Info
Simona E. Cociuba
Alexander Ueberfeldt

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Abstract

This paper analyses the Canadian economy for the post 1960 period. It uses an accounting procedure developed in Chari, Kehoe, and McGrattan (2006). The procedure identifies accounting factors that help align the predictions of the neoclassical growth model with macroeconomic variables observed in the data. The paper finds that total factor productivity and the consumptionleisure trade-off -- the productivity and labor factors -- are key to understanding the changes in output, labor supply and labor productivity observed in the Canadian economy. The paper performs a decomposition of the labor factor for Canada and the United States. It finds that the decline in the gender wage gap is a major driving force of the decrease in the labor market distortions. Moreover, the milder reduction in the labor market distortions observed in Canada, compared to the US, is due to a relative increase in effective labor taxes in Canada.

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File URL: http://www.bankofcanada.ca/en/res/wp/2008/wp08-14.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 08-14.

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Length: 48 pages
Date of creation: 2008
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Handle: RePEc:bca:bocawp:08-14

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Related research
Keywords: Labour markets; Potential output; Productivity;

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Find related papers by JEL classification:
E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution

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  1. Gary D. Hansen & Edward C. Prescott, 2005. "Capacity constraints, asymmetries, and the business cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(4), pages 850-865, October. [Downloadable!] (restricted)
  2. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Jul, pages 2-13. [Downloadable!]
    Other versions:
  3. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December. [Downloadable!] (restricted)
    Other versions:
  4. Julio J. Rotemberg & Michael Woodford, 1999. "The Cyclical Behavior of Prices and Costs," NBER Working Papers 6909, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Timothy J. Kehoe & Edward C. Prescott (), . "Great depressions of the twentieth century," Monograph, Federal Reserve Bank of Minneapolis, number 2007gdott. [Downloadable!]
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  6. Casey B. Mulligan, 2002. "A Century of Labor-Leisure Distortions," NBER Working Papers 8774, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. McGrattan, Ellen R., 1994. "The macroeconomic effects of distortionary taxation," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 573-601, June. [Downloadable!] (restricted)
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  8. Alexander Ueberfeldt, 2006. "Working Time over the 20th Century," Working Papers 06-18, Bank of Canada. [Downloadable!]
  9. Larry E. Jones & Rodolfo E. Manuelli & Ellen R. McGrattan, 2003. "Why are married women working so much?," Staff Report 317, Federal Reserve Bank of Minneapolis. [Downloadable!]
  10. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002. "Business cycle accounting," Working Papers 625, Federal Reserve Bank of Minneapolis.
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  11. Alan Ahearne & Finn Kydland & Mark A. Wynne, 2005. "Ireland's great depression," Working Papers 05-10, Federal Reserve Bank of Dallas. [Downloadable!]
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  12. Frank C. Lee & Jianmin Tang, 2000. "Productivity Levels and International Competitiveness between Canadian and U.S. Industries," American Economic Review, American Economic Association, vol. 90(2), pages 176-179, May. [Downloadable!] (restricted)
  13. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December. [Downloadable!] (restricted)
    Other versions:
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