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Parsing shocks: real-time revisions to gap and growth projections for Canada

  • Russell Barnett
  • Sharon Kozicki
  • Christopher Petrinec

The output gap - the deviation of output from potential output - has played an important role in the conduct of monetary policy in Canada. This paper reviews the Bank of Canada's definition of potential output, as well as the use of the output gap in monetary policy. Using a real-time staff economic projection dataset from 1994 through 2005, a period during which the staff used the Quarterly Projection Model to construct economic projections, the authors investigate the relationship between shocks (data revisions or real-time projection errors) and revisions to projections of key macroeconomic variables. Of particular interest are the interactions between shocks to real gross domestic product (GDP) and inflation and revisions to the level of potential output, potential growth, the output gap, and real GDP growth.

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Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2009)
Issue (Month): Jul ()
Pages: 247-266

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Handle: RePEc:fip:fedlrv:y:2009:i:jul:p:247-266:n:v.91no.4
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  1. Kozicki, Sharon, 1999. "Multivariate detrending under common trend restrictions: Implications for business cycle research," Journal of Economic Dynamics and Control, Elsevier, vol. 23(7), pages 997-1028, June.
  2. Tiff Macklem, 2002. "Information and Analysis for Monetary Policy: Coming to a Decision," Bank of Canada Review, Bank of Canada, vol. 2002(Summer), pages 11-18.
  3. Irene Ip, 1998. "Labour force participation in Canada: Trends and shifts," Bank of Canada Review, Bank of Canada, vol. 1998(Summer), pages 29-52.
  4. Mise, Emi & Kim, Tae-Hwan & Newbold, Paul, 2005. "On suboptimality of the Hodrick-Prescott filter at time series endpoints," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 53-67, March.
  5. Guay, A & St-Amant, P, 1996. "Do Mechanical Filters Provide a Good Approximation of Business Cycles?," Technical Reports 78, Bank of Canada.
  6. Russell Barnett, 2007. "Trend Labour Supply in Canada: Implications of Demographic Shifts and the Increasing Labour Force Attachment of Women," Bank of Canada Review, Bank of Canada, vol. 2007(Summer), pages 5-18.
  7. Allan Crawford, 2002. "Trends in Productivity Growth in Canada," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 19-32.
  8. St-Amant, P. & van Norden, S., 1997. "Measurement of the Output Gap: A Discussion of Recent Research at the Bank of Canada," Technical Reports 79, Bank of Canada.
  9. Cote, D. & Hostland, D., 1996. "An Econometric Examination of the Trend Unemployment Rate in Canada," Working Papers 96-7, Bank of Canada.
  10. Stephen Poloz & David Rose & Robert Tetlow, 1994. "The Bank of Canada's new Quarterly Projection Model (QPM): An introduction," Bank of Canada Review, Bank of Canada, vol. 1994(Autumn), pages 23-38.
  11. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231.
  12. Coletti, D. & Hunt, B. & Rose, D. & Tetlow, R., 1996. "The Bank of Canada's New Quarterly Projection Model. Part 3 , the Dynamic Model : QPM," Technical Reports 75, Bank of Canada.
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