Canadian monetary policy analysis using a structural VARMA model

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Abstract

This paper builds a structural VARMA (SVARMA) model for investigating Canadian monetary policy. Using the scalar component methodology proposed by Athanasopoulos and Vahid (2008a), we first identify a VARMA model and then construct a SVARMA for Canadian monetary policy. Relative to the responses by a structural VAR, the responses generated by the SVARMA are consistent with those supported by various theoretical models and solve economic puzzles commonly found in the empirical literature on monetary policy. The superior out-of-sample forecasting performance of the reduced form VARMA compared to VAR alternatives further advocates the suitability of this framework for small open economies.

Original languageEnglish
Pages (from-to)347-373
Number of pages27
JournalCanadian Journal of Economics
Volume49
Issue number1
DOIs
Publication statusPublished - 1 Feb 2016

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