It Has Been Argued That Canada's Aggregate Output Growth and Unemployment

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Examlex · Accepted Answer

The Answer is Autocorrelation in the error term is the result of omitted variables which are
serially correlated.Canadian unemployment rates depend on Canadian labor
market conditions and most likely on Canadian aggregate demand variables in
the short run.Prime candidates for slowly changing omitted variables would be
demographics, indicators of unemployment insurance generosity, changes in the
terms of trade, monetary policy indicators such as the real interest rate, etc.
Some of these variables are highly likely to be correlated with U.S.
unemployment rates since demographics are similar between the two countries
and Canadian monetary policy often follows moves made by the Federal
Reserve.A case could be made that the U.S.unemployment rate is exogenous
as a result of the relative size of the two economies.However, due to the size of
the trade between the two countries, this is not as easy to support as if the
dependent variable were the unemployment rate in Costa Rica, say.

It Has Been Argued That Canada's Aggregate Output Growth and Unemployment

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