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This is the sixth of a series of papers that are being written as part of a project to estimate a small quarterly Global Projection Model (GPM). The GPM project is designed to improve the toolkit to which economists have access for studying both own-country and crosscountry linkages. In this paper, we add three more regions and make a number of other changes to a previously estimated small quarterly projection model of the US, euro area, and Japanese economies. The model is estimated with Bayesian techniques, which provide a very efficient way of imposing restrictions to produce both plausible dynamics and sensible forecasting properties.

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This paper draws attention to the fact that the price level in Canada—which is an inflation targeter—has strayed little from the path it would have taken had inflation never wandered off the 2% target since its introduction and has tended to revert to that path after temporary deviations. Econometric analysis using Bayesian estimation suggests that a low probability can be assigned to explaining this behavior by mutually offsetting shocks. More plausible is the assumption that inflation expectations and interest rates are determined in a way that is consistent with an element of price‐level‐path targeting.

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