- Publications and Research
|Author(s)||Jean-François Fillion, André Léonard|
|Date of publication||January 1997|
This study, which draws on a variety of research on price dynamics in Canada, examines some hypotheses that might explain the poor quality of recent inflation forecasts based on the conventional Phillips curve. Among the various explanations we consider for the persistent underestimation of inflation, the one that emerges most clearly from our findings is that the process by which inflation expectations are formed has changed in recent years. Shifts in expectations appear to have been influenced by monetary policy developments. To take account of this factor, we estimate a Phillips curve that incorporates four autoregressive regimes based on the results of a Markov-switching model. We find that when regimes are introduced, the Phillips curve produces accurate forecasts for inflation since 1991.
|Bank topic index||Topics: Inflation and prices; Inflation targets|
|JEL classification||C52; E31|