The Macroeconomic Effects of Uncertainty on the Canadian Economy

Title: The Macroeconomic Effects of Uncertainty on the Canadian Economy
Authors: Duford, Corey
Date: 2015-12-31
Abstract: The 2007-2008 global financial crisis caused severe economic damage and the subsequent recovery has been slow and stagnant. Immediately following these events, a great deal of literature focusing on the effects of uncertainty emerged. Much of the research has demonstrated that uncertainty shocks negatively impact economies. Moreover, research shows that elevated uncertainty has hindered the recovery. Despite this, very little work about uncertainty has been advanced for Canada. In turn, this paper uses a Structural Vector Autoregressive (SVAR) model to estimate the impact of Canadian and United States (US) uncertainty shocks on the economy. The results indicate that Canadian uncertainty shocks, after taking into account US uncertainty, have minimal effects on the economy. Gross Domestic Product (GDP) and the Bank Rate (BR) are the two variables that are negatively affected in a statistically significant manner. Unsurprisingly, the impact of US uncertainty shocks produce negative economic fluctuations on all Canadian variables and thus, the economy. The conclusion drawn from this paper is that Canadian and US uncertainty have a negative impact on the Canadian economy but the impact of US uncertainty is far greater.
CollectionScience économique - Mémoires // Economics - Research Papers