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Time-varying equilibrium rates in small open economies: Evidence for Canada

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Listed author(s):
  • Berger, Tino
  • Kempa, Bernd

Abstract

This paper estimates equilibrium rates of macroeconomic aggregates for small open economies. We simultaneously identify the transitory and permanent components of output, inflation, the interest rate and the exchange rate by means of a multivariate trend-cycle decomposition. Realizations of the observed macroeconomic aggregates are explained in terms of unobserved equilibrium rates and unobserved transitory components. The transitory components of the variables are linked to each other through an aggregate demand equation, a Phillips curve, and an equation specifying the interest rate-exchange rate nexus. The model is then applied to Canadian data.

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File URL: http://www.sciencedirect.com/science/article/pii/S0164070413001985
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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 39 (2014)
Issue (Month): PA ()
Pages: 203-214

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Handle: RePEc:eee:jmacro:v:39:y:2014:i:pa:p:203-214
DOI: 10.1016/j.jmacro.2013.12.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

Keywords: Unobserved components; Potential output; Natural rate of interest; Equilibrium exchange rate;

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Find related papers by JEL classification:
  • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
  • 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
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
  • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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Cited by:

  1. Michael Donadelli & Vahid Mojtahed & Antonio Paradiso, 2015. "Technological Progress, Investment Frictions and Business Cycle: New Insights from a Neoclassical Growth Model," Working Papers LuissLab 15119, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  2. Brian Micallef, 2016. "A Multivariate Filter to Estimate Potential Output and NAIRU for the Maltese Economy," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(5), pages 13-22, May.
  3. Mariarosaria Comunale & Jonas Striaukas, 2017. "Unconventional monetary policy: interest rates and low inflation: A review of literature and methods," CAMA Working Papers 2017-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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