The Bank of Canada's New Quarterly Projection Model, Part 4. A Semi-Structural Method to Estimate Potential Output: Combining Economic Theory with a Time-Series Filter

The level of potential output plays a central role in the Bank of Canada's new Quarterly Projection Model (QPM). This report, the fourth in a series documenting QPM, describes a general method to measure potential output, as well as its implementation in the QPM system. The report begins with a short history of the measurement of potential output. Building on this experience, a hybrid method of measuring potential output is developed that combines economic structure with a time-series filter. The resulting filter, known as the extended multivariate (EMV) filter, exploits theoretical relationships that are embodied in QPM in an effort to identify demand-side and supply-side influences on output. These various relationships are combined in a filter that imposes a smoothness property on the dynamics of potential output. This report describes the general structure of the EMV filter, the various economic relationships that it uses, and the weights applied to these different pieces of information. The report concludes with an evaluation of the EMV filter and some suggestions for future improvements.
Le niveau de la production potentielle occupe une place centrale dans le nouveau Mod��le trimestriel de pr��vision (MTP) de la Banque du Canada. La pr��sente ��tude, la quatri��me de la s��rie traitant du MTP, d��crit une m��thode g��n��rale de mesure de la production potentielle ainsi que la mani��re dont elle est mise en oeuvre dans le mod��le. L'auteur rappelle d'abord bri��vement la gen��se de la mesure de la production potentielle. Il pr��sente ensuite une m��thode hybride de mesure de la production potentielle qui est fond��e sur les le��ons de l'exp��rience et combine une structure ��conomique et un filtre appliqu�� �� une s��rie chronologique. Le filtre ainsi obtenu, appel�� filtre multivari�� ��largi, tire parti des relations th��oriques que renferme le MTP pour d��terminer les influences respectives de la demande et de l'offre sur la production. Ces relations sont r��unies dans un filtre qui impose une contrainte de lissage �� la dynamique de la production potentielle. L'auteur d��crit la structure g��n��rale du filtre multivari�� ��largi, les diverses relations ��conomiques que le filtre met �� contribution ainsi que les pond��rations appliqu��es �� celles-ci. Il conclut en proc��dant �� une ��valuation du filtre propos�� et sugg��re quelques pistes en vue de l'am��liorer.