Economic models

• October 22, 2006

  ToTEM: The Bank of Canada's New Projection and Policy-Analysis Model

  Bank of Canada Review - Autumn 2006 Paul Fenton, Stephen Murchison

  The Terms-of-Trade Economic Model, or ToTEM, replaced the Quarterly Projection Model (QPM) in December 2005 as the Bank's principal projection and policy-analysis model for the Canadian economy. Benefiting from advances in economic modelling and computer power, ToTEM builds on the strengths of QPM, allowing for optimizing behaviour on the part of firms and households, both in and out of steady state, in a multi-product environment. The authors explain the motivation behind the development of ToTEM, provide an overview of the model and its calibration, and present several simulations to illustrate its key properties, concluding with some indications of how the model is expected to evolve going forward.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Business fluctuations and cycles, Economic models
• October 20, 2006

  MUSE: The Bank of Canada's New Projection Model of the U.S. Economy

  Bank of Canada Review - Autumn 2006 Marc-André Gosselin, René Lalonde, Nicolas Parent

  Staff projections provided for the Bank of Canada's monetary policy decision process take into account the integration of Canada's very open economy within the global economy, as well as its close real and financial linkages with the United States. To provide inputs for this projection, the Bank has developed several models, including MUSE, NEUQ (the New European Quarterly Model), and BoC-GEM (Bank of Canada Global Economy Model), to analyze and forecast economic developments in the rest of the world. The authors focus on MUSE, the model currently used to describe interaction among the principal U.S. economic variables, including gross domestic product, inflation, interest rates, and the exchange rate. Brief descriptions are also provided of NEUQ and BoC-GEM.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Econometric and statistical methods, Economic models, International topics
• October 8, 2006

  Modelling Financial Channels for Monetary Policy Analysis

  Bank of Canada Review - Autumn 2006 Ian Christensen, Ben Fung, Césaire Meh

  The Bank of Canada considers a wide range of information and analysis before making a monetary policy decision and uses carefully articulated models to produce economic projections and to examine alternative scenarios. This article describes an ongoing research agenda at the Bank to develop models in which financial variables play an active role in the transmission of monetary policy actions to economic activity. Such models can help to analyze information from the financial side of the economy and to provide an overall view of the implications of financial developments for the current economic outlook. The authors also explain how this research can help address other issues relevant to the objectives of monetary policy, including how asset-price movements should be taken into account in the monetary policy framework.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Credit and credit aggregates, Economic models, Monetary policy transmission