E3 - Prices, Business Fluctuations, and Cycles

• The Commodity-Price Cycle and Regional Economic Performance in Canada

  Staff Working Paper 1996-12 Mario Lefebvre, Stephen S. Poloz

  This paper attempts to provide one interpretation of the broad regional economic history of Canada since the early 1970s. As the title of the paper suggests, we believe that, to a significant degree, regional diversity in economic performance reflects movements in Canada's terms of trade, which very frequently are tied to developments in world commodity markets.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Regional economic developments JEL Code(s): E, E3, E32

• Does Inflation Uncertainty Vary with the Level of Inflation?

  Staff Working Paper 1996-9 Allan Crawford, Marcel Kasumovich

  The purpose of this study is to test the hypothesis that inflation uncertainty increases at higher levels of inflation. Our analysis is based on the generalized autoregressive conditional heteroscedasticity (GARCH) class of models, which allow the conditional variance of the error term to be time-varying. Since this variance is a proxy for inflation uncertainty, a positive relationship between the conditional variance and inflation would be interpreted as evidence that inflation uncertainty increases with the level of inflation.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Inflation and prices, Monetary policy and uncertainty JEL Code(s): C, C5, C52, E, E3, E31

• A Distant-Early-Warning Model of Inflation Based on M1 Disequilibria

  Staff Working Paper 1996-5 Joseph Atta-Mensah, Walter Engert, Scott Hendry, Jamie Armour

  A vector error-correction model (VECM) that forecasts inflation between the current quarter and eight quarters ahead is found to provide significant leading information about inflation. The model focusses on the effects of deviations of M1 from its long-run demand but also includes, among other things, the influence of the exchange rate, a simple measure of the output gap and past prices.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Economic models, Monetary aggregates, Monetary policy transmission JEL Code(s): E, E3, E37, E5, E52

• Decomposing U.S. Nominal Interest Rates into Expected Inflation and Ex Ante Real Interest Rates Using Structural VAR Methodology

  Staff Working Paper 1996-2 Pierre St-Amant

  In this paper, the author uses structural vector autoregression methodology to decompose U.S. nominal interest rates into an expected inflation component and an ex ante real interest rate component. He identifies inflation expectations and ex ante real interest rate shocks by assuming that nominal interest rates and inflation expectations move one-for-one in the long-run—they are cointegrated (1,1)—and that the real interest rate is stationary.

  Content Type(s): Staff research, Staff working papers Research Topic(s): Interest rates, International topics JEL Code(s): E, E3, E31, E4, E43

• Measurement Biases in the Canadian CPI

  Technical Report No. 64 Allan Crawford

  The consumer price index (CPI) may be an imperfect measure of changes in the cost of living owing to measurement biases known as commodity substitution bias, new goods bias, quality bias and outlet substitution bias. When the sum of these individual biases is positive, the rate of change in the CPI overstates the increase in […]

  Content Type(s): Staff research, Technical reports Research Topic(s): Inflation and prices JEL Code(s): E, E3, E31

• Wage and Price Dynamics in Canada

  Technical Report No. 56 Barry Cozier

  This paper examines wage and price dynamics in Canada with a view towards testing the implications of a wage-price dynamics, according to which unit labour costs are determined by a wage Phillips curve while prices are set as a markup over unit labour costs. This model is compared to an alternative model in which excess […]

  Content Type(s): Staff research, Technical reports Research Topic(s): Inflation and prices JEL Code(s): C, C5, C51, C52, E, E2, E24, E3, E31

• Some Evidence on Hysteresis and the Costs of Disinflation in Canada

  Technical Report No. 55 Barry Cozier, Gordon Wilkinson

  This paper addresses the following questions: How large are the output costs of disinflation in Canada? Are these costs temporary, as predicted by natural-rate models, or are they permanent, as predicted by hysteresis models? Are the costs of disinflation higher at lower rates of inflation? Are they higher when the economy is at or below […]

  Content Type(s): Staff research, Technical reports Research Topic(s): Labour markets JEL Code(s): E, E2, E24, E3, E31

• The Goal of Price Stability: A Review of the Issues

  Technical Report No. 54 Jack Selody

  The basic responsibility of a central bank is to preserve the value of money—that is, to maintain stability in the general level of prices. This report pulls together the main arguments for and against price stability as the appropriate goal for monetary policy. The available evidence suggests that the benefits of price stability are many […]

  Content Type(s): Staff research, Technical reports Research Topic(s): Inflation targets JEL Code(s): E, E3, E31, E5, E50

• The Inflation-adjusted Rate of Return on Corporate Debt and Equity: 1966-1980

  Technical Report No. 39 Stuart Gilson

  This report has two main objectives: First, to determine whether the real tax rate on investment income has proven sensitive to inflation; second, to determine the extent to which real returns to debt and equity, based on published data, differ from those based on inflation-adjusted data. The scope of the inflationary distortion in corporate income […]

  Content Type(s): Staff research, Technical reports Research Topic(s): Interest rates JEL Code(s): E, E3, E31, G, G1, G12, G3, G30

• Asset Stocks and the Use of Monetary and Fiscal Policies to Reduce Inflation

  Technical Report No. 35 Paul Masson

  This paper analyzes the dynamic behaviour of a country's economy under different policy regimes, by examining the cyclical effects that occur when certain intermediate macroeconomic targets are adopted. To highlight the differences in the adjustment paths that result, the study deliberately limits policy choice: either money supply or nominal income as targets, and either real […]

  Content Type(s): Staff research, Technical reports Research Topic(s): Fiscal policy, Inflation and prices, Monetary policy and uncertainty JEL Code(s): E, E3, E31, E6, E63