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A cointegrated structural VAR model of the Canadian economy

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Abstract:

This paper implements a cointegrated structural VAR model of the Canadian economy using quarterly data over the period 1964-1994. The dynamic properties of the estimated model are compared to the predictions of a simple textbook macro model. Four long-run equilibrium relationships are tested: (i) consumption-income; (ii) consumption-wealth; (iii) money demand; and (iv) the Fisher equation. The empirical results obtained are generally consistent with the predictions of the textbook model's long-run implications, although level shifts are observed in the consumption/income and the wealth/income ratios. Similarly it is found that there was an increase in the ex post real interest rate, implying a level shift in the Fisher relation, following the Bank of Canada's policy change towards a stable price level target.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/0003684042000175325

Affiliations: 1: Department of Economics, Box 19479 University of Texas at Arlington Arlington TX 76019 USA 2: Department of Economics CBA-512K University of Nebraska at Omaha Omaha NE 68182 USA

Publication date: February 1, 2004

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