This study presents an econometric model designed to project developments in the current account of the Canadian balance of payments. The exposition of the study is divided into three parts; Part I describes the general structure of the model; Part II contains the complete equation system of the model and summarizes the statistical estimates of the behavioral equations; Part III presents the results of testing the model for the years 1962–64, and the results of a projection made from the model for the current account in 1965.
In the model the trading world is divided into four regions: Canada, the United States, Western Europe, and the rest of the world. Merchandise trade transactions between each of these regions are treated by separate equations, as are non-merchandise trade transactions of Canada with each of the other three regions. The non-merchandise or service transactions are separated by category into expenditures for transportation, travel, interest and dividends, and all other services. Also included in the model are equations for gross national product (GNP), consumption, and inventory investment in Canada, the United States, and Western Europe, as well as equations for export prices in each of the four regions. The specification and structure of the model are based largely on a three-region world trade model of the US current account recently employed by Rhomberg. For purposes of the following discussion, the fifty equations contained in the model are consolidated into twelve general equations. The variables used in the equations are shown below: the subscripts 1, 2, 3, and 4 refer to Canada, the United States, Western Europe, and the rest of the world respectively.