Time-varying equilibrium rates in small open economies: Evidence for Canada

Tino Berger and Bernd Kempa

Journal of Macroeconomics, 2014, vol. 39, issue PA, 203-214

Abstract: This paper estimates equilibrium rates of macroeconomic aggregates for small open economies. We simultaneously identify the transitory and permanent components of output, inflation, the interest rate and the exchange rate by means of a multivariate trend-cycle decomposition. Realizations of the observed macroeconomic aggregates are explained in terms of unobserved equilibrium rates and unobserved transitory components. The transitory components of the variables are linked to each other through an aggregate demand equation, a Phillips curve, and an equation specifying the interest rate-exchange rate nexus. The model is then applied to Canadian data.

Keywords: Unobserved components; Potential output; Natural rate of interest; Equilibrium exchange rate (search for similar items in EconPapers)
JEL-codes: C11 C32 E32 E43 F41 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:39:y:2014:i:pa:p:203-214

DOI: 10.1016/j.jmacro.2013.12.002

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