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Tracking Canadian Trend Productivity: A Dynamic Factor Model with Markov Switching

Author

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  • Michael Dolega

Abstract

The author attempts to track Canadian labour productivity over the past four decades using a multivariate dynamic factor model that, in addition to the labour productivity series, includes aggregate compensation and consumption information. Productivity is assumed to switch between two regimes (the high-growth state and the low-growth state) with different trend growth rates according to a first-order Markov process. The author finds that labour productivity in Canada fell from the high-growth to the low-growth state towards the end of the 1970s, and that it has not yet reverted to the high-growth state. In particular, the model primarily attributes the resurgence of labour productivity growth in the late nineties to transitory effects.

Suggested Citation

  • Michael Dolega, 2007. "Tracking Canadian Trend Productivity: A Dynamic Factor Model with Markov Switching," Discussion Papers 07-12, Bank of Canada.
    • Handle: RePEc:bca:bocadp:07-12
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    Cited by:

    1. Catherine Doz & Anna Petronevich, 2017. "On the consistency of the two-step estimates of the MS-DFM: a Monte Carlo study," PSE Working Papers halshs-01592863, HAL.
    2. Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada.
    3. Julien Champagne & Guillaume Poulin‐Bellisle & Rodrigo Sekkel, 2018. "The Real‐Time Properties of the Bank of Canada's Staff Output Gap Estimates," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(6), pages 1167-1188, September.
    4. Catherine Doz & Anna Petronevich, 2016. "Dating Business Cycle Turning Points for the French Economy: An MS-DFM approach," Advances in Econometrics, in: Dynamic Factor Models, volume 35, pages 481-538, Emerald Group Publishing Limited.

    More about this item

    Keywords

    Productivity;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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