ToTEM II: An Updated Version of the Bank of Canada’s Quarterly Projection Model
Rhys Mendes (),
Stephen Murchison and
Technical Reports from Bank of Canada
This report provides a detailed technical description of an updated version of the Terms-of-Trade Economic Model (ToTEM II), which replaced ToTEM (Murchison and Rennison 2006) in June 2011 as the Bank of Canada’s quarterly projection model for Canada. ToTEM has been improved along a number of dimensions, with important changes to the model structure, including: (i) multiple interest rates, (ii) sector-specific demand specifications for consumption, housing investment and inventory investment, (iii) a role for financial wealth in household consumption, and (iv) rule-of-thumb price and wage setters. These new features remove some of the restrictions on model dynamics implied by assumptions in ToTEM, making ToTEM II more general and flexible than its predecessor. Furthermore, most of ToTEM II’s parameters are now formally estimated using full information estimation techniques, leading to significantly improved in-sample goodness of fit. The report discusses the model’s estimation and reviews the most important changes in the model’s properties. Finally, some important applications of ToTEM II in addressing recent policy questions are provided.
Keywords: Economic models; Business fluctuations and cycles (search for similar items in EconPapers)
JEL-codes: E17 E20 E30 E40 E50 F41 (search for similar items in EconPapers)
Pages: 88 pages
New Economics Papers: this item is included in nep-mac
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