An Estimated Canadian DSGE Model with Nominal and Real Rigidities

29 Pages Posted: 24 Oct 2003

See all articles by Ali Dib

Ali Dib

Bank of Canada - Department of Monetary and Financial Analysis

Abstract

We develop a dynamic, stochastic, general-equilibrium (DSGE) model due to Ireland (1997) and others and estimate it for the Canadian economy to analyse the real effects of monetary policy shocks. To generate high and persistent real effects, the model combines nominal frictions in the form of costly price adjustment with real rigidities modelled as convex costs of adjusting capital and/or employment. The structural parameters identifying transmission channels are estimated econometrically using a maximum-likelihood procedure with a Kalman filter. The estimated nominal and real rigidities impart substantial and persistent real effects following a monetary policy shock. Furthermore, the results suggest that the monetary authority has accommodated technology shocks and has successfully offset the real effects of money-demand shocks, by actively responding to these shocks.

JEL Classification: E31, E32, E52

Suggested Citation

Dib, Ali, An Estimated Canadian DSGE Model with Nominal and Real Rigidities. Canadian Journal of Economics, Vol. 36, pp. 949-972, November 2003. Available at SSRN: https://ssrn.com/abstract=459149

Ali Dib (Contact Author)

Bank of Canada - Department of Monetary and Financial Analysis ( email )

234 Wellington Street
Ottawa, Ontario K1A 0G9
Canada
613-782-7851 (Phone)

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