In many mainstream macroeconomic models, sticky prices play an important role in explaining the effects of monetary policy on the economy.Topics: Inflation and prices; Transmission of monetary policy
To better understand price-setting behaviour in the Canadian economy, the Bank of Canada's regional offices surveyed a representative sample of 170 firms between July 2002 and March 2003. The authors discuss the reasons behind the survey, the methodology used to develop the questionnaire and conduct the interviews, and summarize the results. The study also assessed several explanations for holding prices steady despite market pressures for a change. The survey findings indicate that prices in Canada are relatively flexible and have become more flexible over the past decade. Price stickiness was generally found to originate in firms' fears of antagonizing customers or disturbing the goodwill or reputation developed with them. A detailed discussion of the results includes a consideration of their implications for monetary policy.Topics: Inflation and prices; Transmission of monetary policy
The regional offices of the Bank conducted a survey of 140 Canadian companies (representing all non-government sectors of the economy) to study the effects of restructuring (defined as a major change in the way firms do business).Topics: Labour markets; Productivity; Regional economic developments
Towards the end of the 1980s and into the early 1990s, the Canadian economy experienced a number of structural changes. These included free trade agreements (both the FTA and NAFTA), significant technological advances, deregulation in many sectors of the economy, the arrival of large, U.S.-based retailers, and the introduction of the GST. The restructuring associated with these developments may partly explain the rather lacklustre performance of output and employment growth in the first half of the 1990s.
The connection between corporate restructuring and employment is difficult to assess analytically. It is, however, useful to ask companies directly about their experiences. For this reason, the Bank's regional offices conducted a survey of 140 companies to ascertain whether restructuring had been more intensive in the 1990s than in the 1980s, and how this affected employment at the firm level.
The broad results of the survey are clear—the degree of restructuring was greater in the 1990s than in the 1980s (Table 1). Restructuring included operational as well as workforce adjustments, and the most common form of restructuring was investing in new technology (Table 3). When companies were asked why they restructured, the most common response was the availability of new technology.
Competition has also influenced firms to restructure. This factor was cited second after the affordability of new technology (Table 4).
The results indicate that many firms did reduce staff as part of their restructuring efforts. Reasons for the reductions included competitive pressures and investment in new technology (Table 6). The survey also attempted to gauge the amount of "churning" or change in the composition of the workforce. The change identified most frequently, especially in the 1990s, was the need for more highly skilled workers. Companies required employees to be adaptable and to change career paths more frequently. This is consistent with the growing investment in new technology.
Companies that had weathered the shocks of the 1980s and 1990s were optimistic. Indeed, the recent performance of the economy would suggest that some of the negative impacts of restructuring are now over. Productivity did pick up in the late 1990s, and it is likely that further gains from restructuring are still to come.Topics: Labour markets; Productivity; Regional economic developments