ToTEM III: The Bank of Canada’s Main DSGE Model for Projection and Policy Analysis

Paul Corrigan, Hélène Desgagnés, José Dorich, Vadym Lepetyuk, Wataru Miyamoto () and Yang Zhang

No 119, Technical Reports from Bank of Canada

Abstract: We present a technical description of the second large-scale update to the Terms-of-Trade Economic Model: ToTEM III. This updated version of the model replaced ToTEM II in 2017. ToTEM III's structure includes key aspects of household indebtedness and improved modelling of the housing market. These new features allow Bank staff to address a broader range of economic issues. Moreover, the model is estimated using a Bayesian methodology with informative priors and a larger set of observable variables, including improved measures of the factors explaining non-commodity exports. These enhancements in the model structure and estimation have contributed to significant improvements in the empirical properties of the model. We also compare the new model’s responses to key macroeconomic shocks with those of ToTEM II and explore two important policy applications.

Keywords: Business fluctuations and cycles; Economic models; Housing; Interest rates; Monetary policy (search for similar items in EconPapers)
JEL-codes: E65 F41 G51 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2021
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocatr:119

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