REAL-FINANCIAL LINKAGES IN THE CANADIAN ECONOMY: AN INPUT--OUTPUT APPROACH

Danny Leung and Oana Secrieru

Economic Systems Research, 2012, vol. 24, issue 2, 195-223

Abstract: The recent financial crisis highlighted the importance of better understanding the interaction between macroeconomic and financial conditions. In this paper, we provide a financial social accounting matrix for the Canadian economy and use it to assess the strength of real-financial linkages by calculating and comparing multipliers with and without endogenous financial flows. It is found that taking into account financial flows increases the impact of a final demand shock on output by 4--11%. Moreover, between 2008 and 2009H1, the investment decisions of financial institutions together with the fact that non-financial institutions were unwilling or unable to increase their financial liabilities led to estimated declines in all GDP multipliers. The impact of a final demand shock on GDP declined 3--5%, while the impact of an increase in the availability of investment funds fell 30% and 55% for financial and non-financial corporations, respectively.† -super-†The views expressed in this paper are those of the authors. No responsibility for them should be attributed to Statistics Canada.

Date: 2012
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Working Paper: Real-Financial Linkages in the Canadian Economy: An Input-Output Approach (2011)
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DOI: 10.1080/09535314.2012.684345

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