E31 - Price Level; Inflation; Deflation
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The Common Component of CPI: An Alternative Measure of Underlying Inflation for Canada
In this paper, the authors propose a measure of underlying inflation for Canada obtained from estimating a monthly factor model on individual components of the CPI. This measure, labelled the common component of CPI, has intuitive appeal and a number of interesting features. -
Is There a Quality Bias in the Canadian CPI? Evidence from Micro Data
Rising consumer prices may reflect shifts by consumers to new higher-priced products, mostly for durable and semi-durable goods. I apply Bils’ (2009) methodology to newly available Canadian consumer price data for non-shelter goods and services to estimate how price increases can be divided between quality growth and price inflation. -
Market Structure and Cost Pass-Through in Retail
We examine the extent to which vertical and horizontal market structure can together explain incomplete retail pass-through. -
August 16, 2012
Measurement Bias in the Canadian Consumer Price Index: An Update
The consumer price index (CPI) is the most commonly used measure to track changes in the overall level of prices. Since it departs from a true cost-of-living index, the CPI is subject to four types of measurement bias—commodity substitution, outlet substitution, new goods and quality adjustment. The author updates previous Bank of Canada estimates of measurement bias in the Canadian CPI by examining these four sources of potential bias. He finds the total measurement bias over the 2005–11 period to be about 0.5 percentage point per year, consistent with the Bank’s earlier findings. Slightly more than half of this bias is caused by the fixed nature of the CPI basket of goods and services. -
Inflation and Growth: A New Keynesian Perspective
The long-run relation between growth and inflation has not yet been studied in the context of nominal price and wage rigidities, despite the fact that these rigidities now figure prominently in workhorse macroeconomic models. -
Commodities and Monetary Policy: Implications for Inflation and Price Level Targeting
We examine the relative ability of simple inflation targeting (IT) and price level targeting (PLT) monetary policy rules to minimize both inflation variability and business cycle fluctuations in Canada for shocks that have important consequences for global commodity prices. -
May 17, 2012
Inflation Targeting: The Recent International Experience
In the years since the 2006 renewal of Canada’s inflation-control agreement, monetary policy regimes have faced significant shocks, including the global economic and financial crisis. This article reviews the recent experience with inflation targeting, including the debate about the appropriate role of monetary policy in maintaining financial stability. In the aftermath of the crisis, both […] -
Time-Varying Effects of Oil Supply Shocks on the U.S. Economy
We use vector autoregressions with drifting coefficients and stochastic volatility to investigate how the dynamic effects of oil supply shocks on the U.S. economy have changed over time. We find a substantial decline in the short-run price elasticity of oil demand since the mid-eighties. -
The Role of Time-Varying Price Elasticities in Accounting for Volatility Changes in the Crude Oil Market
There has been a systematic increase in the volatility of the real price of crude oil since 1986, followed by a decline in the volatility of oil production since the early 1990s. We explore reasons for this evolution. We show that a likely explanation of this empirical fact is that both the short-run price elasticities of oil demand and of oil supply have declined considerably since the second half of the 1980s.