Economic Revival USA and Canada Business Recovery Efforts

Grade. This corresponds to the way Curtis (2001) interpreted things. He contends that the drop in the GDP growth rate—which he roughly dates to 1980—coincides with a shift in focus of fiscal policy. Though the effects occur earlier than expected, the results in Table 3 generally support this point of view. This just suggests that there might have been a link between the two; it tells nothing about whether the drop in government expenditure growth was acceptable or not. Recall first that the standard deviation of GDP growth rises with a (weakly) statistically significant break occurring in 1981Q4. Examining the component contributions separately does not help us to identify the cause of this break. Though these do not coincide, there is evidence of a change in variation for consumption, government expenditure, exports, and final demand. Early in the 1990s both consumption and final demand show a divergence from their usual range; in both cases, the standard deviation declines. 

Though it does so significantly sooner in the early the contribution of government spending.

Also declines. Particularly with regard to government spending and consumption, these sectors plainly have nothing to do with the increasing variance in GDP growth. The export growth contribution seems to be the offender; early 1970s variance in this factor was rather substantial.twelfth Though it is speculation, a natural explanation for this outcome is that the shift to a floating exchange rate in the early 1970s roughly corresponds with the volatility of the export contribution. More variance in exchange rates could have produced more diversity in export contribution. Furthermore, the higher variance might have something to do with the variations in energy commodity prices that are experienced right now. Given the rising volatility of Canadian GDP growth in the past thirty years, a better knowledge of the behavior of the export sector of Canada and its contributions to GDP would seem to be crucial. Curtis (2001) also takes into account several theories for the increasing standard deviation of output and contends that the refocusing of macroeconomic policy away from aggregate demand stabilization to medium-term objectives (budget balance in the case of fiscal policy and money or inflation targeting in the case of monetary policy) is partially responsible. This assumption, however, is not supported by the data presented; should this be the case, we would almost surely find a similar increase in standard deviation in consumption and final demand with regard to expenditure components probably sensitive to monetary and fiscal stabilization policy. Actually, the data shows these declining following the early 1990s.2013 Fascinatingly, this occurs long before things like NAFTA and other rises in integration take place. Though the anticipated break date is later, 1984Q4, the relationship between investment and US GDP similarly shows notable rise. Although there could be several alternative reasons, three likely ones (all presumably connected) include the following. First, the growing financial connectivity of the US and Canadian economies may directly relate 

Conditional on these projections we now examine the evolving character of correlations

Between US GDP growth and expenditure components (growth contributions). Table 2 shows a modestly significant increase in correlation between US GDP and Canada; of relevance here is to investigate which sectors, if any, could underpin this slight rise. Examining the behavior of these sectors in their own right also helps one to understand the connections between the two economies. Every component of spending shows statistically significant (10% level) change in correlation with the United States. Turning to consumption and, the closely linked indicator, domestic final demand, we see the reverse: a notable decline in correlation with US GDP with an estimated break date in the early 1990s. Although the exact reason of this shift is unknown, the timing points to the longer and more protracted recession Canada has gone through maybe having some influence. Examining the whole picture is more beneficial than speculating further on the fundamental causes. Table 3 shows that expenditure components including investment and exports with presumably strong external links have become more correlated with US growth. This is very much in line with claims made elsewhere that, as obstacles to global trade and finance have dropped in recent years, the degree of synchronization across economies has grown. On the other hand, offsetting this is a domestic industry caught by consumption and domestic final demand that has undermined its link with outside factors. This results in a quite constant correlation—that is, one showing a minor rise—between US and Canadian GDP growth. Given that consumption is such a significant part of GDP, better knowledge of consumption behavior in Canada will help one to better grasp the relationship between Canada and the United States. investment growth in this nation much more closely to what is happening in the United States. Second, significant US economic expansion could inspire tradable industry investment in Canada. Ultimately, foreign direct investment in Canada—which has become simpler in the previous two decades—may be the answer.

The findings here can be reasonably connected to research aiming at determining 

Whether further integration will probably result in more synchronizing of economic cycles. Studies like Frankel and Rose (1998), which focus on optimal currency area criteria—that is, if nations that become more closely linked through trade and/or financial ties have synchronized business cycles?15. More generally, research like Kose, Prasad, and Terrones (2003) probe whether globalization, generally defined, will influence business cycle synchronization. Although theoretically the conclusions for more integration or globalization are unclear (see Kose, Otrok, and Whiteman (2003) or Imbs ( 2004); empirically, however, there seems to be a consensus that stronger trade and financial linkages contribute to greater synchronization, at least in a cross-section of countries for a particular sample. Less clear studies especially looking at whether synchronizing has changed over time with increased integration of trade and financial links, that is globalization, are For a wide range of nations, Kose, Otrok, and Whiteman (2003) particularly examine changing patterns of synchronizing; they do not find evidence of growing direction and timing of the changes, albeit, their consistency across sectors is lacking. Three sectors—investment, government expenditure, and exports—see a rise in relationship with US GDP. The export contribution shows the biggest absolute change: the relationship with US GDP is essentially nil for the period 1962–1972Q3; for the period 1972Q4–2004Q1, the correlation is 0.61. Important elements in the economic cycle synchronizing the US and Canadian economies are, as we would expect, the growing trade ties and increasing trade volume with the United States.