Time-varying equilibrium rates in small open economies: Evidence for Canada
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thomas Laubach & John C. Williams, 2003.
"Measuring the Natural Rate of Interest,"
The Review of Economics and Statistics,
MIT Press, vol. 85(4), pages 1063-1070, November.
- Thomas Laubach & John C. Williams, 2001. "Measuring the natural rate of interest," Finance and Economics Discussion Series 2001-56, Board of Governors of the Federal Reserve System (U.S.).
- Thomas Laubach and John C. Williams, 2001. "Measuring the Natural Rate of Interest," Computing in Economics and Finance 2001 35, Society for Computational Economics.
- José Manuel Campa & Linda S. Goldberg, 2005.
"Exchange Rate Pass-Through into Import Prices,"
The Review of Economics and Statistics,
MIT Press, vol. 87(4), pages 679-690, November.
- Doyle, Matthew & Beaudry, Paul, 2000. "What Happened to the Phillips Curve in the 1990s in Canada," Staff General Research Papers 10286, Iowa State University, Department of Economics.
- Perron, P. & Bai, J., 1995.
"Estimating and Testing Linear Models with Multiple Structural Changes,"
Cahiers de recherche
9552, Universite de Montreal, Departement de sciences economiques.
- Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
- Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Arabinda Basistha, 2007.
"Trend-cycle correlation, drift break and the estimation of trend and cycle in Canadian GDP,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 40(2), pages 584-606, May.
- Engel, Charles & Kim, Chang-Jin, 1999.
"The Long-Run U.S./U.K. Real Exchange Rate,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 31(3), pages 335-56, August.
- Charles Engel & Chang-Jin Kim, 1996. "The Long-Run U.S./U.K. Real Exchange Rate," NBER Working Papers 5777, National Bureau of Economic Research, Inc.
- Engel, C. & Kim, C.J., 1996. "The Long-Run U.S./U.K. real Exchange Rate," Discussion Papers in Economics at the University of Washington 96-14, Department of Economics at the University of Washington.
- Engel, C. & Kim, C.J., 1996. "The Long-Run U.S./U.K. real Exchange Rate," Working Papers 96-14, University of Washington, Department of Economics.
- Robert E. Cumby & John Huizinga, 1990.
"The Predictability of Real Exchange Rate Changes in the Short and Long Run,"
NBER Working Papers
3468, National Bureau of Economic Research, Inc.
- Cumby, Robert E. & Huizinga, John, 1991. "The predictability of real exchange rate changes in the short and long run," Japan and the World Economy, Elsevier, vol. 3(1), pages 17-38, April.
- Clarida, Richard & Galí, Jordi, 1994.
"Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?,"
CEPR Discussion Papers
951, C.E.P.R. Discussion Papers.
- Richard Clarida & Jordi Gali, 1994. "Sources of real exchange rate fluctuations: how important are nominal shocks?," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
- Clarida, Richard & Gali, Jordi, 1994. "Sources of real exchange-rate fluctuations: How important are nominal shocks?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 1-56, December.
- Richard Clarida & Jordi Gali, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," NBER Working Papers 4658, National Bureau of Economic Research, Inc.
- Jordi Galí & Richard Clarida, 1993. "Sources of real exchage rate fluctuations: How important are nominal shocks?," Economics Working Papers 66, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 1994.
- Durbin, James & Koopman, Siem Jan, 2001.
"Time Series Analysis by State Space Methods,"
Oxford University Press, number 9780198523543, July.
- Tom Doan, . "SEASONALDLM: RATS procedure to create the matrices for the seasonal component of a DLM," Statistical Software Components RTS00251, Boston College Department of Economics.
- John M. Roberts, 2004.
"Monetary policy and inflation dynamics,"
Finance and Economics Discussion Series
2004-62, Board of Governors of the Federal Reserve System (U.S.).
- Jeannine Bailliu & Wei Dong & John Murray, 2010. "Has Exchange Rate Pass-Through Really Declined? Some Recent Insights from the Literature," Bank of Canada Review, Bank of Canada, vol. 2010(Autumn), pages 1-8.
- Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
- Basistha, Arabinda & Nelson, Charles R., 2007. "New measures of the output gap based on the forward-looking new Keynesian Phillips curve," Journal of Monetary Economics, Elsevier, vol. 54(2), pages 498-511, March.
- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
- Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
- Jean-Paul Lam, 2004.
"Estimating Policy-Neutral Interest Rates for Canada Using a Dynamic Stochastic General-Equilibrium Framework,"
Staff Working Papers
04-9, Bank of Canada.
- Jean-Paul Lam & Greg Tkacz, 2004. "Estimating Policy-Neutral Interest Rates for Canada Using a Dynamic Stochastic General Equilibrium Framework," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(I), pages 89-126, March.
- Menzie D. Chinn & Guy Meredith, 2004. "Monetary Policy and Long-Horizon Uncovered Interest Parity," IMF Staff Papers, Palgrave Macmillan, vol. 51(3), pages 409-430, November.
- Caroline M. Betts & Timothy J. Kehoe, 2004.
"U.S. real exchange rate fluctuations and relative price fluctuations,"
334, Federal Reserve Bank of Minneapolis.
- Betts, Caroline M. & Kehoe, Timothy J., 2006. "U.S. real exchange rate fluctuations and relative price fluctuations," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1297-1326, October.
- Caroline M. Betts & Timothy J. Kehoe, 2005. "U.S. Real Exchange Rate Fluctuations and Relative Price Fluctuations," IEPR Working Papers 05.16, Institute of Economic Policy Research (IEPR).
- Caroline M. Betts & Timothy J. Kehoe, 2004. "U.S. Real Exchange Rate Fluctuations and Relative Price Fluctuations," Levine's Bibliography 122247000000000587, UCLA Department of Economics.
- Rapach, David E & Wohar, Mark E, 2005. "Regime Changes in International Real Interest Rates: Are They a Monetary Phenomenon?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 887-906, October.
- Clark, Peter B. & MacDonald, Ronald, 2004.
"Filtering the BEER: A permanent and transitory decomposition,"
Global Finance Journal,
Elsevier, vol. 15(1), pages 29-56.
- Peter B. Clark & Ronald MacDonald, 2000. "Filtering the Beer: A Permanent and Transitory Decomposition," IMF Working Papers 00/144, International Monetary Fund.
- Laurence Ball, 1998.
"Policy Rules for Open Economies,"
NBER Working Papers
6760, National Bureau of Economic Research, Inc.
- Menzie D. Chinn & Guy Meredith, 2005. "Testing Uncovered Interest Parity at Short and Long Horizons during the Post-Bretton Woods Era," NBER Working Papers 11077, National Bureau of Economic Research, Inc.
- Isabell Koske & Nigel Pain, 2008. "The Usefulness of Output Gaps for Policy Analysis," OECD Economics Department Working Papers 621, OECD Publishing.
- Kichian, Maral, 1999. "Measuring Potential Output within a State-Space Framework," Staff Working Papers 99-9, Bank of Canada.
- Mesonnier, Jean-Stephane & Renne, Jean-Paul, 2007.
"A time-varying "natural" rate of interest for the euro area,"
European Economic Review,
Elsevier, vol. 51(7), pages 1768-1784, October.
- Jean-Stephane Mesonnier & Jean-Paul Renne, 2004. "A Time Varying Natural Rate of Interest for the Euro Area," Money Macro and Finance (MMF) Research Group Conference 2004 42, Money Macro and Finance Research Group.
- MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank, Research Centre.
- Geweke, John, 1989. "Bayesian Inference in Econometric Models Using Monte Carlo Integration," Econometrica, Econometric Society, vol. 57(6), pages 1317-39, November.
- Peter K. Clark, 1987. "The Cyclical Component of U. S. Economic Activity," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 797-814.
- Harvey, A C, 1985. "Trends and Cycles in Macroeconomic Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(3), pages 216-27, June.
- Watson, Mark W., 1986. "Univariate detrending methods with stochastic trends," Journal of Monetary Economics, Elsevier, vol. 18(1), pages 49-75, July.
When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:39:y:2014:i:pa:p:203-214. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.