Chief Economic Analyst (613-951-9162)

In the year 2008, the price of crude oil changed 5% or more on 39 separate days, the most on record. See “Where’s Oil Going Next?” NY Times, January 15, 2009.

In fact, it is not obvious that the small declines in the exchange rate in 1981 and 1990 were entirely related to the business cycle, since both occurred during a period of secular depreciation of the Canadian dollar.

The 45% drop is based on monthly data. The daily TSX fell 51% between June 6, 2008 and March 6, 2009. The stock market posted its largest weekly drop on record starting on October 6.

See P. Cross and G. Salvatore, “The changing role of inventories in the business cycle.” Canadian Economic Observer, Statistics Canada Catalogue no. 11-010-XWE, November 2003.

According to the diffusion index for GDP (which measures the percentage of industries raising production), 55% of industries were still boosting output in September and October 2008. By November, however, only 30% of industries were still expanding. This 25-point swing in the monthly diffusion index was the largest ever (with the exception of a 44-point drop during Ontario’s electrical blackout in August 2003).

May 2009 is tentatively used as the low for employment. While jobs rose in June but fell more in July, the July decrease appears to be related more to record rain in central Canada than to the business cycle. Substituting July data would not materially change the analysis, as it was only 0.1% below the May level.

The impending strike at Inco in the summer of 1982 may have played a role in keeping output high in the spring.

See ‘Miners hope to learn from past cycles’, by Peter Koven, National Post, March 9, 2009. It is also noteworthy that the rest of the mining sector (non-metal mines and oil and gas) moved closely with overall GDP during downturns.

Technology also facilitated the diffusion of financial innovations such as subprime mortgages and securitised debt products to investors around the world, which accelerated the spread of the contagion late in 2008. See Frederic Mishkin, “Is Monetary Policy Effective during Financial Crisis.” American Economic Review, May 2009.

Summarized from Ben Bernarke, “The Crisis and the Policy Response”. At the Stamp Lecture to London School of Economics, January 13, 2009, p. 4.

See Henry Paulson Jr., “On the Brink: Inside the Race to Stop the Collapse of the Global Financial System.” Business Plus (Hachette Book Group), NY, 2010.

Real GDI fell 5.5% and domestic demand 5.1% in 1981-1982, while they contracted by 3.7% and 3.6% respectively in 1990-1991.