A cointegrated structural VAR model of the Canadian economy

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) co...

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Bibliographic Details
Published in:Applied economics 2004-02, Vol.36 (3), p.195-213
Main Authors: Crowder, William J., Wohar, Mark E.
Format: Article
Language:English
Subjects:
Applied economics
Canada
Cointegration analysis
Consumption
Demand
Economic models
Economic theory
Economics
Income
Model testing
National economy
Studies
Wealth
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Summary: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.
ISSN:0003-6846
1466-4283
DOI:10.1080/0003684042000175325