E3 - Prices, Business Fluctuations, and Cycles
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Dynamic Employment and Hours Effects of Government Spending Shocks
In this paper, we analyze the dynamic behaviour of employment and hours worked per worker in a stochastic general equilibrium model with a matching mechanism between vacancies and unemployed workers. The model is estimated for the United States using the Generalized Methods of Moments (GMM) estimation technique. An increase in government spending raises hours worked […] -
On the Believable Benefits of Low Inflation
This paper reviews the existing theoretical and empirical literature addressing the benefits of low inflation. The ultimate goal is to arrive at a set of benefits in which a monetary authority can have genuine confidence. I argue that the current state of economic research—both empirical and theoretical—provides little basis for believing in significant observable benefits […] -
Forecasting Inflation with the M1-VECM: Part Two
A central bank's main concern is the general direction of future inflation, and not transitory fluctuations of the inflation rate. As a result, this paper is concerned with forecasting a simple measure of the trend of inflation, the eight-quarter CPI-inflation rate. The primary objective is to improve the M1-based vector-error-correction model (VECM) developed by Hendry […] -
Predicting Canadian Recessions Using Financial Variables: A Probit Approach
This paper examines the ability of a number of financial variables to predict Canadian recessions. Regarding methodology, we follow closely the technique employed by Estrella and Mishkin (1998), who use a probit model to predict U.S. recessions up to eight quarters in advance. Our main finding is that the spread between the yield on Canadian […] -
The Benefits of Low Inflation: Taking Stock
This paper surveys the empirical literature on the benefits of low inflation, emphasizing contributions since 1990. It follows the framework of a section in the Bank's 1990 Annual Report, "The benefits of price stability." -
A Measure of Underlying Inflation in the United States
A monetary authority with the primary objective of price stability has to distinguish between temporary price shocks and persistent shocks to the rate of inflation. A measure of underlying inflation, therefore, has an important role to play as a guideline for monetary policy. -
Menu Costs, Relative Prices, and Inflation: Evidence for Canada
The menu-cost models of price adjustment developed by Ball and Mankiw (1994;1995) predict that short-run movements in inflation should be positively related to the skewness and the variance of the distribution of disaggregated relative-price shocks in each period. We test these predictions on Canadian data using the distribution of changes in disaggregated producer prices to measure the skewness and standard deviation of relative-price shocks. -
A Band-Aid Solution to Inflation Targeting
This paper reviews selectively the literature on exchange rate target zones and corresponding methodologies and examines whether they can be used to analyse the inflation-control problem. -
Mesures du taux d'inflation tendanciel
In this paper, the author calculates new measures of the trend inflation rate using changes in the components of total CPI; the hypothesis is that extreme fluctuations in certain prices reflect temporary supply shocks rather than any basic price trend. -
La courbe de Phillips au Canada : un examen de quelques hypothèses
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.