December 23, 2003 The Comparative Growth of Goods and Services Prices Bank of Canada Review - Winter 2003-2004 Edith Gagnon, Patrick Sabourin, Sébastien Lavoie For several decades, the prices of services have been rising more rapidly than the prices of goods in Canada and the other major industrialized countries. In 2002, this gap between the growth rates of these two components of the consumer price index (CPI) widened considerably, leading researchers to ask if this was the beginning of a trend. Analysis reveals, however, that the gap is based on short-term dynamics and that it appears to be independent of the trend in the development of the overall price level. Evidence also shows that the gap is eventually reabsorbed. The authors examine a number of potential causes for the prices of services to rise faster than those of goods. These include the more rapid pace of productivity growth in the goods sector, the greater openness of goods to foreign trade, and stronger growth in the demand for services. Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation and prices, International topics, Productivity
The Canadian Phillips Curve and Regime Shifting Staff Working Paper 2003-32 Frédérick Demers Phillips curves are generally estimated under the assumption of linearity and parameter constancy. Linear models of inflation, however, have recently been criticized for their poor forecasting performance. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Inflation and prices JEL Code(s): C, C5, C52, E, E3, E31
Nominal Rigidities and Exchange Rate Pass-Through in a Structural Model of a Small Open Economy Staff Working Paper 2003-29 Steve Ambler, Ali Dib, Nooman Rebei The authors analyze exchange rate pass-through in an estimated structural model of a small open economy that incorporates three types of nominal rigidity (wages and the prices of domestically produced and imported goods) and eight different structural shocks. The model is estimated using quarterly data from Canada and the United States. Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models, Exchange rates, Inflation and prices, International topics JEL Code(s): F, F2, F3, F31, F33
Explaining and Forecasting Inflation in Emerging Markets: The Case of Mexico Staff Working Paper 2003-17 Jeannine Bailliu, Daniel Garcés, Mark Kruger, Miguel Messmacher The authors apply existing inflation models that have worked well in industrialized countries to Mexico, an emerging market that has recently moved to adopt an inflation-targeting framework for monetary policy. They compare the performance of these models with a mark-up model that has been used extensively to analyze inflation in Mexico. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, International topics JEL Code(s): E, E3, E31, E37
Inflation Changes, Yield Spreads, and Threshold Effects Staff Working Paper 2002-40 Greg Tkacz Using interest rate yield spreads to explain changes in inflation, we investigate whether such relationships can be modelled using two-regime threshold models. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Interest rates JEL Code(s): C, C5, C51, E, E3, E31
An Empirical Analysis of Dynamic Interrelationships Among Inflation, Inflation Uncertainty, Relative Price Dispersion, and Output Growth Staff Working Paper 2002-39 Francis Vitek Within a unified framework, the author conducts an empirical investigation of dynamic interrelationships among inflation, inflation uncertainty, relative price dispersion, and output growth. Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices JEL Code(s): E, E3, E31
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
Estimates of the Sticky-Information Phillips Curve for the United States, Canada, and the United Kingdom Staff Working Paper 2002-19 Hashmat Khan, Zhenhua Zhu Mankiw and Reis (2001a) have proposed a "sticky-information"-based Phillips curve (SIPC) to address some of the concerns with the "sticky-price"-based new Keynesian Phillips curve. Content Type(s): Staff research, Staff working papers Topic(s): Economic models, Inflation and prices JEL Code(s): E, E3, E31
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