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A Structural Small Open-Economy Model for Canada

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Author Info

  • Stephen Murchison
  • Andrew Rennison
  • Zhenhua Zhu

Abstract

The authors develop a small open-economy dynamic stochastic general-equilibrium (DSGE) model in an attempt to understand the dynamic relationships in Canadian macroeconomic data. The model differs from most recent DSGE models in two key ways. First, for prices and wages, the authors use the time-dependent staggered contracting model of Dotsey, King, and Wolman (1999) and Wolman (1999), rather than the Calvo (1983) specification. Second, to model investment, the authors adopt Edge's (2000a, b) framework of time-to-build with ex-post inflexibilities. The model's parameters are chosen to minimize the distance between the structural model's impulse responses to interest rate, demand (consumption), and exchange rate shocks and those from an estimated vector autoregression (VAR). The majority of the model's theoretical impulse responses fall within the 5 and 95 per cent confidence intervals generated by the VAR.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 04-4.

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Length: 54 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:bca:bocawp:04-4

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Related research

Keywords: Business fluctuations and cycles; Economic models; Inflation and prices;

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References

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Citations

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Cited by:
  1. Franz Hamann Salcedo & Juan Manuel Julio & Paulina Restrepo, . "Inflation Targeting in a Samll Open Economy: The Colombian Case," Borradores de Economia 308, Banco de la Republica de Colombia.
  2. J.E. Boscá & A. Díaz & R. Doménech & J. Ferri & E. Pérez & L. Puch, 2007. "A Rational Expectations Model for Simulation and Policy Evaluation of the Spanish Economy," Working Papers 0706, International Economics Institute, University of Valencia.
  3. Lindé, Jesper & Nessen, Marianne & Söderström, Ulf, 2004. "Monetary Policy in an Estimated Open-Economy Model with Imperfect Pass-Through," CEPR Discussion Papers 4531, C.E.P.R. Discussion Papers.
  4. Hilde C. Bjørnland, 2005. "Monetary policy and the illusionary exchange rate puzzle," Working Paper 2005/11, Norges Bank.
  5. Bjørnland, Hilde C., 2009. "Monetary policy and exchange rate overshooting: Dornbusch was right after all," Journal of International Economics, Elsevier, vol. 79(1), pages 64-77, September.
  6. Gregory de Walque & Frank Smets & Rafael Wouters, 2006. "Firm-Specific Production Factors in a DSGE Model with Taylor Price Setting," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
  7. Kanda Naknoi & Michael Kumhof & Douglas Laxton, 2005. "On the Benefits of Exchange Rate Flexibility under Endogenous Tradedness of Goods," Computing in Economics and Finance 2005 405, Society for Computational Economics.
  8. Gino Cateau, 2006. "Guarding Against Large Policy Errors under Model Uncertainty," Working Papers 06-13, Bank of Canada.
  9. repec:ebl:ecbull:v:6:y:2007:i:41:p:1-13 is not listed on IDEAS
  10. Kapetanios, G. & Pagan, A. & Scott, A., 2007. "Making a match: Combining theory and evidence in policy-oriented macroeconomic modeling," Journal of Econometrics, Elsevier, vol. 136(2), pages 565-594, February.
  11. Cheuk Yin Ho, 2007. "Illegal migration and economic growth: simulation analysis in an international context," Economics Bulletin, AccessEcon, vol. 6(41), pages 1-13.

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