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A Small Open Economy in Depression: Lessons from Canada in the 1930s

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  • Caroline M. Betts
  • Michael D. Bordo
  • Angela Redish

Abstract

This paper tests the hypothesis that idiosyncratic U.S. disturbances and their international propagation can account for the global Depression. Exploiting common stochastic trends in U.S. and Canadian interwar data, we estimate a small open economy model for Canada that decomposes output fluctuations into sources identifiable with world and country-specific disturbances. We find that the onset, depth and duration of output collapse in both Canada and the U.S. are primarily attributable to a common, permanent output shock leaving little significant role for idiosyncratic disturbances originating in either economy.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4515.

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Date of creation: Nov 1993
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Publication status: published as Canadian Journal of Economics, vol. XXIX, no. 1, pp. 1-36, February 1996.
Handle: RePEc:nbr:nberwo:4515

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  1. Ahmed, Shaghil & Ickes, Barry W. & Ping Wang & Byung Sam Yoo, 1993. "International Business Cycles," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 335-59, June.
  2. Ben S. Bernanke, 1986. "Alternative Explanations of the Money-Income Correlation," NBER Working Papers 1842, National Bureau of Economic Research, Inc.
  3. Barro, Robert J, 1979. "Money and the Price Level under the Gold Standard," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 89(353), pages 13-33, March.
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Cited by:
  1. Ehsan U. Choudhri & Lawrence L. Schembri, 2013. "A Tale of Two Countries and Two Booms, Canada and the United States in the 1920s and the 2000s: The Roles of Monetary and Financial Stability Policies," Working Paper Series, The Rimini Centre for Economic Analysis 44_13, The Rimini Centre for Economic Analysis.
  2. Rockoff, Hugh & White, Eugene N., 2012. "Monetary Regimes and Policy on a Global Scale: The Oeuvre of Michael D. Bordo," MPRA Paper 49672, University Library of Munich, Germany, revised May 2013.
  3. Nicolas-Guillaume Martineau & Gregor W. Smith, 2014. "Identifying Fiscal Policy (In)effectiveness from the Differential Counter-Cyclicality of Government Spending in the Interwar Period," Working Papers, Queen's University, Department of Economics 1290, Queen's University, Department of Economics.

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