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A cointegrated structural VAR model of the Canadian economy

  • William Crowder
  • Mark Wohar

This paper implements a cointegrated structural VAR model of the Canadian economy using quarterly data over the period 1964-1994. The dynamic properties of the estimated model are compared to the predictions of a simple textbook macro model. Four long-run equilibrium relationships are tested: (i) consumption-income; (ii) consumption-wealth; (iii) money demand; and (iv) the Fisher equation. The empirical results obtained are generally consistent with the predictions of the textbook model's long-run implications, although level shifts are observed in the consumption/income and the wealth/income ratios. Similarly it is found that there was an increase in the ex post real interest rate, implying a level shift in the Fisher relation, following the Bank of Canada's policy change towards a stable price level target.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 3 ()
Pages: 195-213

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Handle: RePEc:taf:applec:v:36:y:2004:i:3:p:195-213
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  1. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
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  8. R. Tiff Macklem, 1997. "Aggregate Wealth in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 152-68, February.
  9. Horvath, Michael T.K. & Watson, Mark W., 1995. "Testing for Cointegration When Some of the Cointegrating Vectors are Prespecified," Econometric Theory, Cambridge University Press, vol. 11(05), pages 984-1014, October.
  10. Blanchard, Olivier Jean, 1989. "A Traditional Interpretation of Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 79(5), pages 1146-64, December.
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  12. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  13. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  14. Peter C.B. Phillips & Pierre Perron, 1986. "Testing for a Unit Root in Time Series Regression," Cowles Foundation Discussion Papers 795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
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