New model predicts how U.S. economic shocks impact Canada's inflation.
The article introduces a new model for studying open economy macroeconomics, focusing on Canada and the United States. By using an overlapping generations structure and considering nominal rigidity, the model addresses previous issues and allows for empirical investigation. The researchers estimate structural parameters for the Canadian economy using nonlinear least squares and find results consistent with other studies. They show how a shock to the U.S. economy can impact Canada under an inflation-targeting monetary regime.