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The Credit Cycle And The Business Cycle In Canada And The U.S.: Two Solitudes

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  • P. Siklos, B. Lavender

    ()
    (LCERPA)

Abstract

Recent events highlight the importance of understanding the relationship between credit availability and real economic activity. This paper estimates macroeconomic models for Canada to investigate the relationship between changes in non-price lending standards, business loans and output. We allow for the possibility that macroeconomic and financial market conditions in the U.S. affect those in Canada. The responses to financial shocks are dissimilar in both countries. Real time data are also found to have a significant impact on the results. The U.S. and Canada may indeed be likened to 'two solitudes' insofar as the impact of credit conditions is concerned. Differences in the quality of banking standards and supervision of financial institutions, as well differences in the effectiveness of monetary policies in the two countries may partially explain the results.

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Bibliographic Info

Paper provided by Laurier Centre for Economic Research and Policy Analysis in its series LCERPA Working Papers with number wm0065.

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Length: 35
Date of creation: 10 Mar 2014
Date of revision:
Handle: RePEc:wlu:lcerpa:wm0065

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Keywords: macro-financial linkages; credit standards; Loan Officer Survey;

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  1. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262022834, December.
  2. Christopher A. Sims & Tao Zha, 1994. "Error Bands for Impulse Responses," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1085, Cowles Foundation for Research in Economics, Yale University.
  3. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series, Institute for Financial Research 27, Institute for Financial Research.
  4. Ben Bernanke & Jean Boivin & Piotr S. Eliasz, 2005. "Measuring the Effects of Monetary Policy: A Factor-augmented Vector Autoregressive (FAVAR) Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 120(1), pages 387-422, January.
  5. Thomas J. Cunningham, 2006. "The predictive power of the Senior Loan Officer Survey: do lending officers know anything special?," Working Paper, Federal Reserve Bank of Atlanta 2006-24, Federal Reserve Bank of Atlanta.
  6. Tamim Bayoumi & Ola Melander, 2008. "Credit Matters," IMF Working Papers, International Monetary Fund 08/169, International Monetary Fund.
  7. Vladimir Klyuev, 2008. "Real Implications of Financial Linkages Between Canada and the United States," IMF Working Papers, International Monetary Fund 08/23, International Monetary Fund.
  8. Illing, Mark & Liu, Ying, 2006. "Measuring financial stress in a developed country: An application to Canada," Journal of Financial Stability, Elsevier, Elsevier, vol. 2(3), pages 243-265, October.
  9. Fuerst, Timothy S., 1994. "The availability doctrine," Journal of Monetary Economics, Elsevier, Elsevier, vol. 34(3), pages 429-443, December.
  10. Dean Croushore, 2011. "Frontiers of Real-Time Data Analysis," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 49(1), pages 72-100, March.
  11. Wouter J. Den Haan & Steven W. Sumner & Guy M. Yamashiro, 2009. "Bank loan portfolios and the Canadian monetary transmission mechanism," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 42(3), pages 1150-1175, August.
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