A Structural Small Open-Economy Model for Canada

Stephen Murchison, Andrew Rennison and Zhenhua Zhu

Staff Working Papers from Bank of Canada

Abstract: The authors develop a small open-economy dynamic stochastic general-equilibrium (DSGE) model in an attempt to understand the dynamic relationships in Canadian macroeconomic data. The model differs from most recent DSGE models in two key ways. First, for prices and wages, the authors use the time-dependent staggered contracting model of Dotsey, King, and Wolman (1999) and Wolman (1999), rather than the Calvo (1983) specification. Second, to model investment, the authors adopt Edge's (2000a, b) framework of time-to-build with ex-post inflexibilities. The model's parameters are chosen to minimize the distance between the structural model's impulse responses to interest rate, demand (consumption), and exchange rate shocks and those from an estimated vector autoregression (VAR). The majority of the model's theoretical impulse responses fall within the 5 and 95 per cent confidence intervals generated by the VAR.

Keywords: Business fluctuations and cycles; Economic models; Inflation and prices (search for similar items in EconPapers)
JEL-codes: E2 E3 E52 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2004
New Economics Papers: this item is included in nep-ifn and nep-mac
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Citations: View citations in EconPapers (30)

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