Comparing the Dynamics of Canadian Macro Models

By subjecting the CANDIDE, QFM, RDX2, and TRACE models to a standardized experiment and producing a standard set of results, the dynamic response pattern of each of the models may be depicted in a way that permits comparison. The models were subjected to a standardized shock-a sustained increase of $400 million annually in additional government spending. The results were compared for the first year, the second year, and for a 10-year period. The simulations were performed under the assumption of a fixed exchange rate. For all models the balance of trade equilibrium is more closely achieved by pegging the money supply than by pegging nominal interest rates, and for all models except TRACE the same is true for balance of payments equilibrium. The comparative analysis, therefore, concentrated on this case.The evaluation of dynamic response patterns should be an integral part of model and equation selection.