Seasonal, cyclical and secular stability of Canadian aggregate demand for merchandise imports, 1957-1982

The stability of Canada's import demand function for total merchandise over the period 1957-1982 is examined. The techniques employed to test for structural shifts rely on the data themselves, rather than on a prior belief of the researcher, to identify when, if ever, a shift occurred. During this period, Canada ended its experiment with flexible exchange rates and entered into a bilateral trade agreement with the US. The results indicate the presence of structural breaks in import demand occurring about 1965 and again about 1973. The timing of these changes is coincident with the Canadian-American Auto Pact and with a variety of international shocks in the early 1970s. The shifts indicate that it is inappropriate to apply a single model of import demand to the entire post-1957 period and that caution should be used whenever the estimates of such a model are interpreted. The structural shifts are traced to import price, trend income, and seasonal effects.