NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

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

NBER Working Paper No. 4515 (Also Reprint No. r2098)
Issued in December 1996
NBER Program(s):   ME

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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Published: Canadian Journal of Economics, vol. XXIX, no. 1, pp. 1-36, February 1996.

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