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

Caroline Betts, Michael Bordo () and Angela Redish ()

Canadian Journal of Economics, 1996, vol. 29, issue 1, 1-36

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, the authors estimate a small open economy model for Canada that decomposes output fluctuations into sources identifiable with world and country-specific disturbances. They find that the onset, depth, and duration of output collapse in both Canada and the United States are primarily attributable to a common, permanent output shock, leaving little significant role for idiosyncratic disturbances originating in either economy.

Date: 1996
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Handle: RePEc:cje:issued:v:29:y:1996:i:1:p:1-36