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278
result(s)
Menu Costs, Relative Prices, and Inflation: Evidence for Canada
Staff Working Paper 1997-14
Robert Amano,
Tiff Macklem
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.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices,
Monetary policy framework
JEL Code(s):
C,
C5,
C52,
E,
E3,
E31
What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?
Staff Working Paper 1997-13
Seamus Hogan
A 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.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation targets,
Monetary policy framework,
Monetary policy transmission
JEL Code(s):
C,
C5,
C52,
E,
E2,
E24,
E5,
E50
May 13, 1997
Capacity constraints, price adjustment, and monetary policy
The 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.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Inflation and prices,
Monetary policy transmission,
Potential output
A Band-Aid Solution to Inflation Targeting
Staff Working Paper 1997-11
Robert Amano,
Richard Black,
Marcel Kasumovich
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.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation targets
JEL Code(s):
E,
E3,
E31,
E5,
E50
Mesures du taux d'inflation tendanciel
Staff Working Paper 1997-9
Thérèse Laflèche
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.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices
JEL Code(s):
E,
E3,
E31
La courbe de Phillips au Canada : un examen de quelques hypothèses
Staff Working Paper 1997-3
Jean-François Fillion,
André Léonard
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.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices,
Inflation targets
JEL Code(s):
C,
C5,
C52,
E,
E3,
E31
December 11, 1996
The impact of exchange rate movements on consumer prices
In the first, mostly theoretical, part of this article, the author analyses the factors that affect the pass-through of exchange rate movements to consumer prices. In the second part, she studies the recent Canadian experience in this area, starting from 1992. The analysis in the first part of the article is used to investigate why the depreciation of the Canadian dollar by almost 20 per cent between 1992 and 1994 did not produce as much of an increase in the inflation rate as predicted by conventional estimates of the exchange rate pass-through. The author first explains this phenomenon using the factors described in the theoretical part of the article: demand conditions, the costs of adjusting prices, and expectations about the depreciation's duration. She then examines the role of more specific factors, such as the abolition of customs duties on trade between Canada and the United States and the restructuring of the retail market. It is clear that the latter two factors helped neutralize the effect of the depreciation on prices.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Exchange rates,
Inflation and prices,
Monetary policy transmission
August 11, 1996
Real short-term interest rates and expected inflation: Measurement and interpretation
This article compares different measures of real short-term interest rates for Canada over the period from 1956 to 1995. A new measure for the expected real interest rate is constructed using a proxy for inflation expectations that is based on the properties of past inflation. The history of inflation in Canada suggests that the characteristics of inflation have changed considerably over time. Past inflation can be characterized by three different types of behaviour: an environment in which average inflation is low and shocks to inflation have only temporary effects; an environment of moderate inflation with more persistent disturbances; and an environment of drifting inflation in which shocks have permanent effects on the level of inflation. The proxy for inflation expectations uses a statistical model, called a Markov Switching Model, to take account of changes in the behaviour of inflation over time. It is found that uncertainty about the changing characteristics of inflation behaviour leads to uncertainty about estimates of inflation expectations and thus about measures of real interest rates. Target ranges for keeping inflation low should help reduce the uncertainty about inflation behaviour. The behaviour of inflation and interest rates suggests that the credibility of the Bank of Canada's inflation-control objectives is growing. This should reduce inflation uncertainty and lead to lower nominal interest rates over time.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Inflation and prices,
Interest rates
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
Topic(s):
Inflation and prices,
Monetary policy and uncertainty
JEL Code(s):
C,
C5,
C52,
E,
E3,
E31