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Driving forces of the Canadian economy: an accounting exercise

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  • Simona E. Cociuba
  • Alexander Ueberfeldt

Abstract

This paper analyzes 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 consumption-leisure 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 U.S., is due to a relative increase in effective labor taxes in Canada.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 06.

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Date of creation: 2008
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Handle: RePEc:fip:feddgw:06

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Keywords: Economic conditions - Canada ; Productivity - Canada ; Labor productivity ; Labor supply;

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  1. McGrattan, Ellen R., 1994. "The macroeconomic effects of distortionary taxation," Journal of Monetary Economics, Elsevier, vol. 33(3), pages 573-601, June.
  2. Jianmin Tang & Frank C. Lee, 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.
  3. 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.
  4. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, 05.
  5. Rotemberg, Julio J. & Woodford, Michael, 1999. "The cyclical behavior of prices and costs," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135 Elsevier.
  6. 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.
  7. Alan Ahearne & Finn Kydland & Mark A. Wynne, 2006. "Ireland’s Great Depression," The Economic and Social Review, Economic and Social Studies, vol. 37(2), pages 215-243.
  8. Timothy J. Kehoe & Edward C. Prescott, 2002. "Great Depressions of the Twentieth Century," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 1-18, January.
  9. Claudia Goldin, 1990. "Understanding the Gender Gap: An Economic History of American Women," NBER Books, National Bureau of Economic Research, Inc, number gold90-1.
  10. Enrique G. Mendoza & Assaf Razin & Linda L. Tesar, 1995. "Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption," NBER Working Papers 4864, National Bureau of Economic Research, Inc.
  11. 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.
  12. 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.
  13. Alexander Ueberfeldt, 2006. "Working Time over the 20th Century," Working Papers 06-18, Bank of Canada.
  14. Casey B. Mulligan, 2002. "A Century of Labor-Leisure Distortions," NBER Working Papers 8774, National Bureau of Economic Research, Inc.
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Cited by:
  1. Keisuke Otsu, 2012. "How well can business cycle accounting account for business cycles?," Economics Bulletin, AccessEcon, vol. 32(2), pages 1774-1784.
  2. Dooyeon Cho & Antonio Doblas-Madrid, 2013. "Business Cycle Accounting East and West: Asian Finance and the Investment Wedge," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 724-744, October.
  3. Simona Cociuba & Alexander Ueberfeldt, 2012. "Heterogeneity and Long-Run Changes in U.S. Hours and the Labor Wedge," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20124, University of Western Ontario, CIBC Centre for Human Capital and Productivity.

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