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An Estimated Canadian DSGE Model with Nominal and Real Rigidities

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  • Ali Dib

Abstract

This paper develops a dynamic, stochastic, general-equilibrium (DGSE) model for the Canadian economy and evaluates the real effects of monetary policy shocks. To generate high and persistent real effects, the model combines nominal frictions in the form of costly price adjustment with real rigidities modelled as convex costs of adjusting capital and employment. The structural parameters identifying transmission channels are estimated econometrically using a maximum-likelihood procedure with a Kalman filter. The estimated nominal and real rigidities impart substantial real and persistent effects following a monetary policy shock. Furthermore, the results show that the monetary authority has accommodated technology shocks and has successfully insulated the Canadian economy from demand-side disturbances, by responding to technology and money demand shocks.

Suggested Citation

  • Ali Dib, 2001. "An Estimated Canadian DSGE Model with Nominal and Real Rigidities," Staff Working Papers 01-26, Bank of Canada.
  • Handle: RePEc:bca:bocawp:01-26
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    Keywords

    Monetary policy framework;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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