A Small Open Economy in Depression: Lessons from Canada in the 1930s / Caroline M. Betts, Michael D. Bordo, Angela Redish.

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Betts, Caroline M

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w4515.Publication details: Cambridge, Mass. National Bureau of Economic Research 1993.Description: 1 online resource: illustrations (black and white)Subject(s):

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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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Previous	nber w4512 Anti-Competitive and Rent-Shifting Aspects of Domestic-Content Provisions in Regional Trade Blocks /	nber w4513 Discrete Plant-Location Decisions in an Applied General-Equilibrium Model of Trade Liberalization /	nber w4514 Short-Term Contracts as a Monitoring Device /	nber w4515 A Small Open Economy in Depression: Lessons from Canada in the 1930s /	nber w4516 The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving /	nber w4517 Short-Run Independence of Monetary Policy Under Pegged Exchange Rates and Effects of Money on Exchange Rates and Interest Rates /	nber w4518 Beauty and the Labor Market /	Next

November 1993.

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.