Canada's economic performance in the first half of the 1990s was adversely affected by high premiums in interest rates that were brought on by political and economic uncertainties.
Topics: Monetary policy implementation; Transmission of monetary policy; Uncertainty and monetary policyA recent paper has suggested there might be a trade-off between inflation and unemployment at low inflation rates and this has led some economists to recommend that Canada increase its inflation rate.
Topics: Inflation targets; Monetary policy framework; Transmission of monetary policyThe short-run Phillips curve describes a positive short-run relationship between the level of economic activity and inflation. When the level of demand in the economy as a whole runs ahead of the level of output that the economy can supply in the short run, price pressures increase and inflation rises.
This article reviews the origins of the short-run Phillips curve with particular emphasis on the long-standing idea that the shape of this curve may be non-linear, with inflation becoming more sensitive to changes in output when the cycle of economic activity is high than when it is low. This type of non-linearity in the short-run Phillips curve, which is typically motivated by the effects of capacity constraints that limit the ability of the economy to expand in the short run, has recently attracted renewed attention. The article surveys recent research that finds some evidence of this type of non-linearity in the Phillips curve in Canada and considers the potential implications for monetary policy.
Topics: Inflation and prices; Potential output; Transmission of monetary policyThis paper attempts to reduce the uncertainty about the dynamics of the monetary transmission mechanism. Central to this attempt is the identification of monetary policy shocks. Recently, VAR approaches that use over-identifying restrictions have shown success in isolating such shocks.
Topics: Economic models; International topics; Transmission of monetary policy
