The Cyclical Behaviour of Canada's Current Account Balance of Payments

Abstract

<p>The thesis makes a detailed statistical examination, from 1870 to the present, of changes in Canada's current account balance of payments relative to swings in the domestic business cycle. It reveals a strong tendency for the trade and current account balances to deteriorate in periods of economic expansion and to improve when the economy is contracting. An hypothesis is developed to explain this pattern of cyclical behaviour, which is shown to be the equivalent of a tendency for cyclical changes in domestic investment to exceed changes in domestic saving. The importance in the Canadian economy of a foreign trade acceleration effect, together with accommodating cyclical swings in the inflow of long-term capital, appear to be the primary causes of this tendency.</p>