Author: Dr. Ronald Kneebone
This paper investigates the extent to which business cycles in Canada are stabilized in the sense of reducing the depths of recessions and the excesses of booms. It shows that the Canadian economy consists of regional economies whose business cycles differ considerably. The free movement of labour, goods and capital across provincial boundaries is shown to exert a considerable, though not complete, stabilizing influence. Monetary policy is shown to be a blunt tool of stabilization policy as its influence must be applied equally across regions with considerably different business cycles. While the federal budget is shown to exert a significant stabilizing influence on all regional economies, the stabilizing influence of provincial government budgets is much less. The experience of the European Union is described with an eye to drawing useful lessons for Canada. The paper concludes with three policy recommendations designed to increase the extent to which economic cycles are stabilized.