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Common trends and common cycles in Canada: who knew so much has been going on?

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  • James M. Nason
  • Byron G. Scott
  • Elizabeth C. Wakerly

Abstract

It is generally accepted that convergence is well established for regional Canadian per capita outputs. The authors present evidence that long-run movements are driven by two stochastic common trends in this time series. This evidence casts doubt on the convergence hypothesis for Canada. Another prevalent belief is that Canada forms an optimal currency area (OCA). The authors uncover three serially correlated common cycles whose asymmetries suggest Canada is not an OCA. Their common trend-common cycle decomposition of regional outputs also reveals that trend shocks dominate fluctuations in Ontario, Quebec, and the Maritimes in the short run and long run but not in British Columbia and the Prairie region. Thus, regional Canadian economic fluctuations are driven by a rich, diverse, and economically important set of propagation and growth mechanisms.

Suggested Citation

  • James M. Nason & Byron G. Scott & Elizabeth C. Wakerly, 2004. "Common trends and common cycles in Canada: who knew so much has been going on?," FRB Atlanta Working Paper 2004-5, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:2004-5
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    Cited by:

    1. Jason Allen & Robert Amano & David P. Byrne & Allan W. Gregory, 2009. "Canadian city housing prices and urban market segmentation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(3), pages 1132-1149, August.
    2. Faruk Balli & Syed Basher & Rosmy Jean Louis, 2012. "Channels of risk-sharing among Canadian provinces: 1961–2006," Empirical Economics, Springer, vol. 43(2), pages 763-787, October.
    3. Nelson, Charles R., 2008. "The Beveridge-Nelson decomposition in retrospect and prospect," Journal of Econometrics, Elsevier, vol. 146(2), pages 202-206, October.
    4. Rosés, Joan R. & Minns, Chris, 2018. "Power to the Periphery? The failure of Regional Convergence in Canada, 1890-2006," CEPR Discussion Papers 12803, C.E.P.R. Discussion Papers.
    5. Basher, Syed A. & Fachin, Stefano, 2008. "The long-term decline of internal migration in Canada – Ontario as a case study," MPRA Paper 6685, University Library of Munich, Germany.
    6. Maxym Chaban & Graham M. Voss, 2016. "Is Canada an optimal currency area? An inflation targeting perspective," Canadian Journal of Economics, Canadian Economics Association, vol. 49(2), pages 738-771, May.
    7. Dalibor Stevanovic & Stéphane Surprenant & Rachidi Kotchoni, 2019. "Identification des points de retournement du cycle économique au Canada," CIRANO Project Reports 2019rp-05, CIRANO.

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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