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278 result(s)
May 22, 2003

Inflation Targeting and Medium-Term Planning: Some Simple Rules of Thumb

Bank of Canada Review - Spring 2003 David Longworth
Inflation targeting, a stable macroeconomic environment, and an average growth rate for potential output that is not expected to vary much in the next several years all help households, businesses, and governments in their medium-term economic and financial planning. Several simple rules of thumb can be usefully employed in this planning. Specifically, inflation targeting has maintained most major measures of inflation quite close to the target midpoint on average over a number of years. Combined with a clear fiscal framework, this has contributed to a more stable macroeconomic environment in which output varies less around its potential level. Potential output growth is expected to average around 3 per cent over the next several years. In light of these factors and historical relationships, labour income, profits, and consumer spending will likely grow, on average, by about 5 per cent over the medium term. Real and nominal long-term interest rates should also continue to be stable, with real 30-year yields varying around 3.5 or 4.0 per cent, and nominal yields varying around 5.5 or 6.0 per cent.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Business fluctuations and cycles, Inflation targets, Inflation: costs and benefits

Oil-Price Shocks and Retail Energy Prices in Canada

Staff Working Paper 2002-38 Marwan Chacra
The effects of global energy-price shocks on retail energy prices in Canada are examined. More specifically, the author looks at the response of the consumer price indexes for gasoline, heating oil, natural gas, and electricity in Canada to movements in world crude oil prices.
Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Inflation and prices, Market structure and pricing JEL Code(s): C, C2, C22, C5, C51, C53, Q, Q4, Q40

How to Improve Inflation Targeting at the Bank of Canada

Staff Working Paper 2002-23 Nicholas Rowe
This paper shows that if the Bank of Canada is optimally adjusting its monetary policy instrument in response to inflation indicators to target 2 per cent inflation at a two-year horizon, then deviations of inflation from 2 per cent represent the Bank's forecast errors, and should be uncorrelated with its information set, which includes two-year lagged values of the instrument and the indicators. Positive or negative correlations are evidence of systematic errors in monetary policy.
Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Monetary and financial indicators, Monetary policy implementation JEL Code(s): E, E5
May 21, 2002

Inflation and the Macroeconomy: Changes from the 1980s to the 1990s

Bank of Canada Review - Spring 2002 David Longworth
Over the last 10 years, the level of inflation has been much lower than in the previous two decades. At the same time, the behaviour of inflation has changed profoundly. By surveying the data and the economic research, the author first examines changes in the variability, growth rates, and behaviour of some of the major macroeconomic variables during the 1980s and 1990s. He then looks at how these changes are linked to a shift in the approach of monetary policy over the period. Lastly, he reviews the economic benefits that these changes have had for Canada.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Business fluctuations and cycles, Credibility, Inflation targets, Inflation: costs and benefits

Does Micro Evidence Support the Wage Phillips Curve in Canada?

Staff Working Paper 2002-4 Jean Farès
The existing macroeconometric evidence lends support to the wage Phillips curve by showing a negative relation between the rate of change in wages and the unemployment rate, conditional on lagged price inflation. Most theoretical models of wage setting, however, generate a "wage curve," described by a negative relation between the level of the real wage and unemployment.
Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices JEL Code(s): J, J3, J31

New Phillips Curve with Alternative Marginal Cost Measures for Canada, the United States, and the Euro Area

Staff Working Paper 2001-25 Edith Gagnon, Hashmat Khan
Recent research on the new Phillips curve (NPC) (e.g., Galí, Gertler, and López-Salido 2001a) gives marginal cost an important role in capturing pressures on inflation. In this paper we assess the case for using alternative measures of marginal cost to improve the empirical fit of the NPC.
Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Inflation and prices JEL Code(s): E, E3, E31

On Inflation and the Persistence of Shocks to Output

Staff Working Paper 2001-22 Maral Kichian, Richard Luger
This paper empirically investigates the possibility that the effects of shocks to output depend on the level of inflation. The analysis extends Elwood's (1998) framework by incorporating in the model an inflation-threshold process that can potentially influence the stochastic properties of output.
Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Inflation: costs and benefits JEL Code(s): E, E3, E31, E32, E5, E52, E58
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