Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/173376
Authors: 
Alexander, Patrick
Cayen, Jean-Philippe
Proulx, Alex
Year of Publication: 
2017
Series/Report no.: 
Bank of Canada Staff Discussion Paper 2017-1
Abstract: 
We estimate two new equations for Canadian non-commodity exports (NCX) that incorporate three important changes relative to the current equation used at the Bank of Canada. First, we develop two new foreign activity measures (FAMs), which add new components to the FAM currently used at the Bank of Canada. The first measure adds US exports and US government expenditures, and the second adds US industrial production. These new FAMs calibrate the weights on the various components based on the 2014 World Input-Ouput Database to avoid the instability problem that arises when the equations are estimated. Second, we add a new variable to the equations, the trend of Canada's manufacturing share of output, to control for structural or competitiveness factors that affect Canada's global import market share. Third, the relative price of exports is determined by a new measure of the Canadian real effective exchange rate developed by Barnett, Charbonneau and Poulin-Bellisle (2016). We find that the new equations improve the in-sample fit and the out-of-sample forecast accuracy relative to the current equation specified in "LENS", a forecasting model used at the Bank of Canada.
Subjects: 
Balance of payments and components
Exchange rates
International topics
JEL: 
F10
F14
F17
Document Type: 
Working Paper
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