Redistributive Effects of a Change in the Inflation Target Staff analytical note 2017-13 Robert Amano, Thomas J. Carter, Yaz Terajima In light of the financial crisis and its aftermath, several economists have argued that inflation-targeting central banks should reconsider the level of their inflation targets. While the appropriate level for the inflation target remains an open question, it’s important to note that any transition to a new target would entail certain costs. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E5, E52, E58 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission, Real economy and forecasting
A Dynamic Factor Model for Commodity Prices Staff analytical note 2017-12 Doga Bilgin, Reinhard Ellwanger In this note, we present the Commodities Factor Model (CFM), a dynamic factor model for a large cross-section of energy and non-energy commodity prices. The model decomposes price changes in commodities into a common “global” component, a “block” component confined to subgroups of economically related commodities and an idiosyncratic price shock component. Content Type(s): Staff research, Staff analytical notes JEL Code(s): C, C5, C51, Q, Q0, Q02 Research Theme(s): Models and tools, Econometric, statistical and computational methods, Monetary policy, Inflation dynamics and pressures
Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol? Staff working paper 2017-35 Christiane Baumeister, Reinhard Ellwanger, Lutz Kilian It is commonly believed that the response of the price of corn ethanol (and hence of the price of corn) to shifts in biofuel policies operates in part through market expectations and shifts in storage demand, yet to date it has proved difficult to measure these expectations and to empirically evaluate this view. Content Type(s): Staff research, Staff working papers JEL Code(s): Q, Q1, Q18, Q2, Q28, Q4, Q42, Q5, Q58 Research Theme(s): Financial markets and funds management, Market functioning, Models and tools, Econometric, statistical and computational methods, Monetary policy, Inflation dynamics and pressures
Downward Nominal Wage Rigidity in Canada: Evidence Against a “Greasing Effect” Staff working paper 2017-31 Joel Wagner The existence of downward nominal wage rigidity (DNWR) has often been used to justify a positive inflation target. It is traditionally assumed that positive inflation could “grease the wheels” of the labour market by putting downward pressure on real wages, easing labour market adjustments during a recession. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E24, E5, E52 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Real economy and forecasting
Wage Growth in Canada and the United States: Factors Behind Recent Weakness Staff analytical note 2017-8 Dany Brouillette, James Ketcheson, Olena Kostyshyna, Jonathan Lachaine This note examines the relatively subdued pace of wage growth in Canada since the commodity price decline in 2014 and assesses whether the weakness is attributable to cyclical (e.g., labour market slack) or structural factors (e.g., resource reallocation and demographic change). Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E2, E24, J, J3, J30 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Real economy and forecasting, Structural challenges, Demographics and labour supply
A Structural Interpretation of the Recent Weakness in Business Investment Staff analytical note 2017-7 Russell Barnett, Rhys R. Mendes Since 2012, business investment growth has slowed considerably in advanced economies, averaging a little less than 2 per cent versus the 4 per cent growth rates experienced in the period leading up to crisis. Several recent studies have attributed a large part of the weakness in business investment to cyclical factors, including soft aggregate demand, and, to a lesser degree, heightened uncertainty and tighter financial conditions. Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E2, E22, E3, E37 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Real economy and forecasting, Structural challenges, Demographics and labour supply
Downward Nominal Wage Rigidity, Inflation and Unemployment: New Evidence Using Micro‐Level Data Staff analytical note 2017-6 Dany Brouillette, Natalia Kyui Recent evidence suggests that the extent of downward nominal wage rigidity (DNWR) in the Canadian labour market has risen following the 2008–09 recession (see Brouillette, Kostyshyna and Kyui 2016). Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E2, E24, E3, E31, J, J3, J30 Research Theme(s): Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Real economy and forecasting, Structural challenges, Demographics and labour supply
Downward Nominal Wage Rigidity Meets the Zero Lower Bound Staff working paper 2017-16 Robert Amano, Stefano Gnocchi We add downward nominal wage rigidity to a standard New Keynesian model with sticky prices and wages, where the zero lower bound on nominal interest rates is allowed to bind. We find that wage rigidity not only reduces the frequency of zero bound episodes but also mitigates the severity of corresponding recessions. Content Type(s): Staff research, Staff working papers JEL Code(s): E, E2, E24, E3, E32, E5, E52 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission, Real economy and forecasting
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 JEL Code(s): E, E3, E31, E5, E50 Research Theme(s): Monetary policy, Inflation dynamics and pressures, Real economy and forecasting
Terms-of-Trade and House Price Fluctuations: A Cross-Country Study Staff working paper 2017-1 Paul Corrigan Terms-of-trade shocks are known to be key drivers of business cycles in open economies. This paper argues that terms-of-trade shocks were also important for house price fluctuations in a panel of developed countries over the 1994–2015 period. Content Type(s): Staff research, Staff working papers JEL Code(s): C, C3, C32, E, E3, E32, E5, E51, F, F3, F36, F4, F41 Research Theme(s): Financial system, Household and business credit, Monetary policy, Inflation dynamics and pressures, Real economy and forecasting, Structural challenges, International trade, finance and competitiveness