The Impact of the Global Crisis on Canada: What Do Macro-Financial Linkages Tell Us?

20 Pages Posted: 18 Jan 2010

See all articles by Natalia Barrera

Natalia Barrera

affiliation not provided to SSRN

Rupa Duttagupta

International Monetary Fund (IMF)

Date Written: Janurary 2010

Abstract

This paper builds a Bayesian VAR estimation model of growth for Canada, by focusing specifically on the role of external and domestic financial indicators, including credit conditions. A variance decomposition shows that financial conditions explain one-third of the total variability in Canada's real GDP growth, although changes in U.S. real GDP growth still account for a larger share of volatility in Canadian growth. A macro-financial conditions index built from the VAR's impulse responses shows that U.S. real GDP growth and lending standards will increasingly bear on Canada's growth, implying that a normalization of the U.S. economic and financial conditions is key for a sustained recovery in Canada.

Keywords: Bank credit, Canada, Credit controls, Economic forecasting, Economic growth, Economic models, External sector, Financial crisis, Global Financial Crisis 2008-2009, Gross domestic product, Monetary policy, Spillovers

Suggested Citation

Barrera, Natalia and Duttagupta, Rupa, The Impact of the Global Crisis on Canada: What Do Macro-Financial Linkages Tell Us? (Janurary 2010). IMF Working Paper No. 10/5, Available at SSRN: https://ssrn.com/abstract=1537514

Natalia Barrera (Contact Author)

affiliation not provided to SSRN

Rupa Duttagupta

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8583 (Phone)
202-589-8583 (Fax)

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