Explaining and Forecasting Investment Expenditure in Canada: Combined Structural and Time Series Approaches, 1961-2000

Abstract

This paper examines the structural flexible accelerator model of investment with time series model. The Box-Jenkins methodology of ARIMA specification has been used for the estimated residuals of the multivariate Flexible Accelerator Model. I then reestimate the time series model and structural model simultaneously to model the Canadian investment over the period and see how the model forecasts and fits well. The results indicate that the combined structural and ARIMA modeling gives better fit to the actual investment forecast than structural or ARIMA modeling by itself.

Keywords: Investment, Accelerator Model, AR, MA, ARIMA, Canada

JEL Classification: C22, E22