Working Paper

Trade, Relative Prices, and the Canadian Great Depression

Abstract: Canadian GNP per capita fell by roughly a third between 1928 and 1933. Although the decline and the slow recovery of GNP resemble the American Great Depression, trade was more important in Canada, as exports and imports each accounted for roughly a quarter of Canadian GNP in 1928. The fall in the trade share of GNP of roughly 30 percent between 1928 and 1933 was accompanied by a decline of over 20 percent in the relative prices of exports and imports relative to nontraded goods. We develop a three-sector small open economy model, where wages in the nontraded and import competing sectors adjust slowly due to Taylor contracts. We feed the relative prices of imports and exports from the data into the model, and find that the fall in traded goods prices can account for roughly half of the fall in GNP during the Canadian Great Contraction.

Keywords: Great Depression; Sectoral Models; Trade; Relative Prices; Sticky Wages; ;

JEL Classification: E20; E30; E50;

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 2016-02-12

Number: 1606

Pages: 43 pages