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Canadian Business Cycles since 1919: A Progress Report*

Published online by Cambridge University Press:  07 November 2014

Edward J. Chambers
Edward J. Chambers*
Affiliation:
Montana State University
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Extract

Since the appearance of annual estimates of gross national expenditure and its components, their use has dominated the analysis of Canadian business fluctuations. They provide the most comprehensive picture of the value and volume of those goods and services, currently produced and consumed, which have passed through the market place. The national accounts have been adapted to analyses of the relationship between the Canadian economy and the economies of the United Kingdom and the United States, particularly of the latter. Interest in these relationships existed for many years before national income accounting became available, but its development certainly gave the problem new focus.

The use of national accounts for cyclical analysis has given rise to two problems. The first is that attention in Canada has focused on the period since 1926. There has been great emphasis accordingly on the Great Depression, its transmission to and impact on the economy. This cyclical experience has dominated the recent thinking of Canadian economists quite apart from the crises and misery which it brought. After all it is the one cyclical movement which stands out clearly in the national accounts. Furthermore, the experience of 1929-32 presented an unusual combination of circumstances. Nothing like it in duration or extent had occurred since the 1870’s. To base much of the analysis of Canadian business cycles on this one downturn, however major it might have been, and to draw implications for policy therefrom, could easily put public and private decision-making on an inadequate and misleading foundation.

Type
Research Article
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 24 , Issue 2 , May 1958 , pp. 166 - 189
Copyright
Copyright © Canadian Political Science Association 1958

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Footnotes

*

This paper was presented in slightly different form at the annual meeting of the Canadian Political Science Association in Ottawa, June 15, 1957. Valuable advice and criticism were obtained from A. W. Beckett, G. Rosenbluth, A. E. Safarian, and D. J. Daly.

References

1 The criticism that follows applies to the use of annual G.N.P. estimates. Quarterly G.N.P. is available only for the years since 1947.

2 Burns, A. F. and Mitchell, W. C., Measuring Business Cycles (New York, 1946), 3.Google Scholar

3 See Appendix A for listing and source.

4 There are possibly too many foreign trade series, but it is also true that the most accurate historical series available to Canadian researchers relate to merchandise exports and imports.

5 In many broad indicator series the agricultural component has been eliminated. This method seems particularly desirable for a study of this kind; it permits a more accurate representation of cyclical impact on the Canadian economy, since the relatively large amplitudes in most agricultural time series arise from crop fluctuations rather than changes in domestic or foreign demand. In the Canadian economy, as in the American, cyclical movements due to reduced or increased money-spending are much more evident in the non-agricultural sectors of the economy.

6 Marcus, Edward, Canadian Business Cycles, 1926–1939 (New York, 1954).Google Scholar

7 On the average, the seasonal amplitude seems to be about twice as large in Canada as in the United States.

8 Cf. Shiskin, Julius, An Electronic Computor Program for Economic Indicators, Proposed Occasional Paper, National Bureau of Economic Research, 05, 1957, and University of Chicago, Journal of Business, 10, 1957, 217—47.Google Scholar These methods were adapted to electronic computors by members of the staff of the U.S. Dept. of Commerce.

9 Also, in making the older industrial production index, import series were used to measure output in several industries, for example textiles, where imports of wool were employed. There may be differences, especially at cyclical turning points, between the rate of import and the rate of output.

10 There are, basically, two varieties of diffusion indexes which can, for convenience, be distinguished as “historical” and “current.” In the historical variety, the definition of expansion and contraction depends on identifying specific cycles in each of the series included and thus on the dating of turning points. A series is recorded as expanding in all months between its specific cycle trough and the next following peak, and as contracting in all months between its specific cycle peak and the next trough. In a current diffusion index no hindsight is required and an expanding series may be defined as one which records an increase between a given month and the following month. Series such as unemployment and the number of commercial failures would be inverted in computing either type of diffusion index. Cf. Broida, Arthur, “Diffusion Indexes,” American Statistician, 06, 1955, 7–8.Google Scholar

11 The obvious difficulty raised by (2) and (3) is that all the series have been lumped together. No effort is made to discriminate as to the degree of representation of broad economic segments, there is no weighting of the series in terms of their importance, and there is considerable overlapping and duplication among the items included.

12 The difficulties are going to be much less acute in the future because of techniques now being developed at the National Bureau of Economic Research and at the Bureau of tile Census which permit precise measurement of the irregular component in time series.

13 This contrasts with American experience where there is a wide diffusion of specific cycle peaks about the selected reference date of May, 1937, and much more concentration of troughs about the reference trough of June, 1938.

14 Cf. Walton, E. A., “The Vulnerability of the Canadian Economy,” this Journal, XX, no. 1, 02, 1954, 10–18.Google Scholar

15 A forthcoming paper compares the timing of specific cycles in various classifications of merchandise exports with the reference expansions and contractions presented here.

16 For the years prior to 1935 the index of manufacturing production published in the Monthly Review of Business Statistics, Feb., 1944, was used in computing amplitude measures. For 1936 and succeeding years measures are based on the most recently revised index as published in D.B.S. Reference Paper No. 34, Revised Index of Industrial Production (1952).

17 To avoid giving undue weight to the troughs, one-half of the values at the initial and terminal trough were used in computing the average monthly value for the full cycle. See Bums, and Mitchell, , Measuring Business Cycles, 131.Google Scholar

18 This method of measuring cyclical amplitude eliminates the intercycle, or that portion of the secular movement which cumulates from cycle to cycle, but not the intrncycle trend or that part which occurs within a given cycle.

19 Cf. the discussion of Safarian, A. E. on the size of the export multiplier for various commodity groups in “Foreign Trade and the Level of Economic Activity in Canada in the 1990’s,” Journal, XVIII, no. 3, 08, 1952, 343–4.Google Scholar

20 For a description of change in this period see Meier, G. M., “Economic Development and the Transfer Mechanism,” this Journal, XIX, no. 1, 02, 1953, 1–19.Google Scholar