Capital stock and unemployment in Canada

Abstract

The purpose of this article is to test the proposition that capital stock relative to aggregate output was an important variable in the determination of the Canadian nonaccelerating inflation unemployment rate (NAIRU) in the period 1976Q1-2003Q4. We present new empirical evidence obtained from the use of Canadian time-series data that lends support to the claim that the aggregate capital-output ratio was a significant determinant of the NAIRU in the period considered. The evidence presented suggests that insofar as the aggregate capital-output ratio may be affected by changes in real interest rates, the stance of monetary policy was one determinant of the NAIRU in the period considered.