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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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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. Alasdair Scott & George Kapetanios & Adrian Pagan, 2005. "Making a match: combining theory and evidence in policy-oriented macroeconomic modelling," Computing in Economics and Finance 2005, Society for Computational Economics 462, Society for Computational Economics.
  2. Hilde C. Bjørnland, 2006. "Monetary Policy and the Illusionary Exchange Rate Puzzle," Computing in Economics and Finance 2006, Society for Computational Economics 45, Society for Computational Economics.
  3. Jesper Lindé & Marianne Nessén & Ulf Söderström, 2009. "Monetary policy in an estimated open-economy model with imperfect pass-through," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 14(4), pages 301-333.
  4. Gregory de Walque & Frank Smets & Raf Wouters, 2006. "Firm-specific production factors in a DSGE model with Taylor price setting," Working Paper Research, National Bank of Belgium 85, National Bank of Belgium.
  5. Hilde C. Bjørnland, 2009. "Monetary policy and exchange rate overshooting: Dornbusch was right after all," Working Paper, Norges Bank 2009/09, Norges Bank.
  6. 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, International Economics Institute, University of Valencia 0706, International Economics Institute, University of Valencia.
  7. repec:ebl:ecbull:v:6:y:2007:i:41:p:1-13 is not listed on IDEAS
  8. Cheuk Yin Ho, 2007. "Illegal migration and economic growth: simulation analysis in an international context," Economics Bulletin, AccessEcon, vol. 6(41), pages 1-13.
  9. Gino Cateau, 2006. "Guarding Against Large Policy Errors under Model Uncertainty," Working Papers, Bank of Canada 06-13, Bank of Canada.
  10. 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.
  11. 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, Society for Computational Economics 405, Society for Computational Economics.

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