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Analyzing and Forecasting the Canadian Economy through the LENS Model
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Analyzing and Forecasting the Canadian Economy through the LENS Model

Author

Listed:
  • Olivier Gervais
  • Marc-André Gosselin

Abstract

The authors describe the key features of a new large-scale Canadian macroeconomic forecasting model developed over the past two years at the Bank of Canada. The new model, called LENS for Large Empirical and Semi-structural model, uses a methodology similar to the Federal Reserve Board’s FRB/US model and the Bank of Canada’s projection model of the U.S. economy (MUSE). LENS is based on a system of estimated reduced-form equations that describe the interactions among key macroeconomic variables. The model strikes a balance between theoretical structure and empirical properties, since most behavioural equations combine forward-looking expectations with adjustment costs. Compared to ToTEM, the Bank’s main model for projection and policy analysis, LENS is more driven by the empirical properties of the data than economic theory and generally provides better out-of-sample forecast performance. In addition, LENS is more disaggregated, thereby allowing the analysis of a broader set of issues related to the economic outlook. These properties will make LENS a useful complement to ToTEM for constructing economic projections at the Bank of Canada.

Suggested Citation

  • Olivier Gervais & Marc-André Gosselin, 2014. "Analyzing and Forecasting the Canadian Economy through the LENS Model," Technical Reports 102, Bank of Canada.
    • Handle: RePEc:bca:bocatr:102
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic models; Econometric and statistical methods;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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