E31 - Price Level; Inflation; Deflation

• Should Central Banks Worry About Nonlinearities of their Large-Scale Macroeconomic Models?

  Staff Working Paper 2017-21 Vadym Lepetyuk, Lilia Maliar, Serguei Maliar

  How wrong could policymakers be when using linearized solutions to their macroeconomic models instead of nonlinear global solutions?

  Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Econometric and statistical methods, Economic models JEL Code(s): C, C6, C61, C63, C68, E, E3, E31, E5, E52

• Price-Level Dispersion versus Inflation-Rate Dispersion: Evidence from Three Countries

  Staff Working Paper 2017-3 David Fielding, Christopher Hajzler, James (Jim) C. MacGee

  Inflation can affect both the dispersion of commodity-specific price levels across locations (relative price variability, RPV) and the dispersion of inflation rates (relative inflation variability, RIV). Some menu-cost models and models of consumer search suggest that the RIV-inflation relationship could differ from the RPV-inflation relationship.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation and prices JEL Code(s): E, E3, E31, E5, E50

• Output Comovement and Inflation Dynamics in a Two-Sector Model with Durable Goods: The Role of Sticky Information and Heterogeneous Factor Markets

  Staff Working Paper 2016-36 Tomiyuki Kitamura, Tamon Takamura

  In a simple two-sector New Keynesian model, sticky prices generate a counterfactual negative comovement between the output of durable and nondurable goods following a monetary policy shock. We show that heterogeneous factor markets allow any combination of strictly positive price stickiness to generate positive output comovement.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation and prices, Monetary policy transmission JEL Code(s): E, E3, E31, E32, E5, E52

• Housing Market Dynamics and Macroprudential Policy

  Staff Working Paper 2016-31 Gabriel Bruneau, Ian Christensen, Césaire Meh

  We perform an analysis to determine how well the introduction of a countercyclical loanto- value (LTV) ratio can reduce household indebtedness and housing price fluctuations compared with a monetary policy rule augmented with house price inflation.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Business fluctuations and cycles, Financial stability, Housing, Monetary policy framework, Monetary policy transmission JEL Code(s): E, E3, E31, E4, E42, H, H2, H23

• Ce que révèle une analyse sectorielle des dynamiques récentes de l’inflation au Canada

  Staff Analytical Note 2016-7 Laurence Savoie-Chabot

  Decomposing total inflation in Canada as measured by the consumer price index (CPI) into its key macroeconomic factors, as presented in the most recent Monetary Policy Report, is an interesting exercise that shows how the exchange rate pass-through, commodity prices and the output gap have influenced the evolution of the total inflation rate over time. This aggregate approach, however, may mask important sectoral changes.

  Content Type(s): Staff research, Staff analytical notes Research Topic(s): Exchange rates, Inflation and prices JEL Code(s): E, E3, E31

• Understanding Firms’ Inflation Expectations Using the Bank of Canada’s Business Outlook Survey

  Staff Working Paper 2016-7 Simon Richards, Matthieu Verstraete

  Inflation expectations are a key determinant of actual and future inflation and thus matter for the conduct of monetary policy. We study how firms form their inflation expectations using quarterly firm-level data from the Bank of Canada’s Business Outlook Survey, spanning the 2001 to 2015 period.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Central bank research, Credibility, Econometric and statistical methods, Firm dynamics, Inflation and prices, Inflation targets, Monetary policy framework JEL Code(s): C, C1, C2, C25, D, D2, D21, D8, D84, E, E3, E31, E5, E52, E58
• November 19, 2015

  A Survey of Consumer Expectations for Canada

  Bank of Canada Review - Autumn 2015 Marc-André Gosselin, Mikael Khan

  The Bank of Canada recently launched a quarterly survey to measure the expectations of Canadian households: the Canadian Survey of Consumer Expectations (CSCE). The data collected provide comprehensive information about consumer expectations for and uncertainty about inflation, the labour market and household finance. This article describes the CSCE and illustrates its potential to offer rich information about Canadian consumers for researchers and policy-makers.

  Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Central bank research, Housing, Inflation and prices, Interest rates, Labour markets, Monetary policy and uncertainty JEL Code(s): D, D1, D12, D8, D84, E, E3, E31, E5, E52, J, J0
• November 19, 2015

  Measuring Durable Goods and Housing Prices in the CPI: An Empirical Assessment

  Bank of Canada Review - Autumn 2015 Patrick Sabourin, Pierre Duguay

  While the CPI is the most commonly used measure to track inflation, it is not fully consistent with a true cost-of-living index (COLI). Although the official treatment of durable goods and housing in the CPI represents an acceptable compromise in the current environment of low and stable inflation, Sabourin and Duguay suggest that it would be worthwhile to consider treating housing and durables in the same way and bringing the actual CPI closer to a COLI. This could be accomplished by employing an enhanced user-cost approach to calculate the imputed cost of the services provided by the use of durable goods or housing.

  Content Type(s): Publications, Bank of Canada Review articles Research Topic(s): Inflation and prices JEL Code(s): E, E3, E31, E5, E52

• A Comprehensive Evaluation of Measures of Core Inflation for Canada

  Staff Discussion Paper 2015-12 Mikael Khan, Louis Morel, Patrick Sabourin

  This paper evaluates the usefulness of various measures of core inflation for the conduct of monetary policy. Traditional exclusion-based measures of core inflation are found to perform relatively poorly across a range of evaluation criteria, in part due to their inability to filter unanticipated transitory shocks.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Inflation and prices, Monetary policy framework JEL Code(s): E, E3, E31, E5, E52

• Exchange Rate Pass-Through to Consumer Prices: Theory and Recent Evidence

  Staff Discussion Paper 2015-9 Laurence Savoie-Chabot, Mikael Khan

  In an open economy such as Canada’s, exchange rate movements can have a material impact on consumer prices. This is particularly important in the current context, with the significant depreciation of the Canadian dollar vis-a-vis the U.S. dollar since late 2012.

  Content Type(s): Staff research, Staff discussion papers Research Topic(s): Exchange rates, Inflation and prices JEL Code(s): E, E3, E31, E5, E52, F, F3, F31