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An Up-to-Date and Improved BVAR Model of the Canadian Economy

Listed author(s):
  • Daniel Racette
  • Jacques Raynauld
  • Christian Sigouin

In this paper, we estimate a fully optimized BVAR model of the Canadian economy for the period 1971-87. The model is well-adapted to the features of a small open economy. We show how it can be used as an input in the monetary policy process either as a forecasting instrument or an analytical tool. In general, forecast results over the 1988-92 period compare well with those of univariate autoregressive models. The results from the variance decomposition exercise show a rather weak influence of monetary aggregates on macroeconomic variables, at least in a short-run context. However, foreign variables, particularly commodity prices, play an important role. Dans cette etude, nous presentons l'estimation, pour la periode 1971-1987, d'un modele BVAR de l'economie canadienne particulierement bien adapte aux caracteristiques d'economie ouverte du pays. La methode utilisee permet d'optimiser globalement l'estimation de l'ensemble des hyperparametres du modele. Nous montrons comment le modele peut etre utilise comme outil d'analyse ou de prevision dans le domaine de la politique monetaire. Les resultats des exercices de prevision realises a l'aide du modele se comparent avantageusement a ceux qui sont obtenus pour la meme periode avec des modeles autoregressifs univaries (AR). Par ailleurs, les exercices de decomposition de variances indiquent que les agregats monetaires ont, du moins a court terme, une influence plutot faible sur les grandes variables macroeconomiques, mais que les variables etrangeres, en particulier les prix des denrees de base, jouent un role important.

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Paper provided by Bank of Canada in its series Staff Working Papers with number 94-4.

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Date of creation:
Handle: RePEc:bca:bocawp:94-4
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  1. Wirjanto, T.S. & Amano, R.A., 1993. "The Dynamic Demand for Money in Germany, Japan and the United Kingdom," Working Papers 9314, University of Waterloo, Department of Economics.
  2. Simon van Norden & Huntley Schaller & ), 1995. "Speculative Behaviour, Regime-Switching, and Stock Market Crashes," Econometrics 9502003, EconWPA.
  3. Amano, R. A. & van Norden, S., 1998. "Oil prices and the rise and fall of the US real exchange rate," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 299-316, April.
  4. Lafrance, Robert & St-Amant, Pierre, 2000. "Les zones monétaires optimales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 577-612, décembre.
  5. P Clark & D Laxton, 1997. "Phillips Curves," CEP Discussion Papers dp0344, Centre for Economic Performance, LSE.
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