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Global Real Activity for Canadian Exports: GRACE

Author

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  • André Binette
  • Tony Chernis
  • Daniel de Munnik

Abstract

Canadian exports have often disappointed since the Great Recession. The apparent disconnect between exports and the Bank of Canada’s current measure of foreign demand has created an impetus to search for an alternative. Based on a dynamic factor model (DFM) methodology, we use a broad range of international economic indicators (close to 300) to estimate external demand for Canadian exports. The new measure, Global Real Activity for Canadian Exports (GRACE), follows Binette et al. (2014) who suggest that a mix of global final expenditure and production variables could help better identify activity relevant to Canadian exports. They also suggest that non?US variables might be relevant. GRACE uses final expenditure and production variables not only from the United States but also for all of Canada’s major trading partners. We apply this approach to total exports and 14 subaggregates of Canadian exports. Overall, we find that this new measure has good theoretical and empirical properties, especially for higher-level aggregates.

Suggested Citation

  • André Binette & Tony Chernis & Daniel de Munnik, 2017. "Global Real Activity for Canadian Exports: GRACE," Discussion Papers 17-2, Bank of Canada.
    • Handle: RePEc:bca:bocadp:17-2
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    Cited by:

    1. Paul Corrigan & Hélène Desgagnés & José Dorich & Vadym Lepetyuk & Wataru Miyamoto & Yang Zhang, 2021. "ToTEM III: The Bank of Canada’s Main DSGE Model for Projection and Policy Analysis," Technical Reports 119, Bank of Canada.
    2. Chernis, Tony & Cheung, Calista & Velasco, Gabriella, 2020. "A three-frequency dynamic factor model for nowcasting Canadian provincial GDP growth," International Journal of Forecasting, Elsevier, vol. 36(3), pages 851-872.
    3. José Dorich & Vadym Lepetyuk & Jonathan Swarbrick, 2018. "Weakness in Non-Commodity Exports: Demand versus Supply Factors," Staff Analytical Notes 2018-28, Bank of Canada.
    4. Patrick Alexander & Jean-Philippe Cayen & Alex Proulx, 2017. "An Improved Equation for Predicting Canadian Non-Commodity Exports," Discussion Papers 17-1, Bank of Canada.
    5. Sharon Kozicki & Jill Vardy, 2017. "Communicating Uncertainty in Monetary Policy," Discussion Papers 17-14, Bank of Canada.
    6. Taylor Webley, 2018. "Characterizing Canada’s Export Sector by Industry: A Supply-Side Perspective," Staff Analytical Notes 2018-27, Bank of Canada.
    7. Dany Brouillette & José Dorich & Chris D'Souza & Adrienne Gagnon & Claudia Godbout, 2018. "What Is Restraining Non-Energy Export Growth?," Staff Analytical Notes 2018-25, Bank of Canada.

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    More about this item

    Keywords

    Balance of payments and components; Econometric and statistical methods; Exchange rates;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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