We develop a three-sector small open economy model, where wages in the nontraded and import competing sectors adjust slowly due to Taylor contracts, to study the impact of relative prices on Canadian GNP between 1928 and 1933.
If official interventions convey private information useful for price discovery in foreign-exchange markets, then they should have value as a forecast of near-term exchange-rate movements.
U.S. and Canadian housing markets are similar, but each has fared differently since the onset of the financial crisis. Comparison suggests that relaxed lending standards likely played a critical role in the U.S. housing bust.
