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

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  • Berger, Tino
  • Kempa, Bernd
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.

Suggested Citation

  • Berger, Tino & Kempa, Bernd, 2014. "Time-varying equilibrium rates in small open economies: Evidence for Canada," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 203-214.
    • Handle: RePEc:eee:jmacro:v:39:y:2014:i:pa:p:203-214
    DOI: 10.1016/j.jmacro.2013.12.002
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    More about this item

    Keywords

    Unobserved components; Potential output; Natural rate of interest; Equilibrium exchange rate;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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