E3 - Prices, Business Fluctuations, and Cycles
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On the Believable Benefits of Low Inflation
This paper reviews the existing theoretical and empirical literature addressing the benefits of low inflation. The ultimate goal is to arrive at a set of benefits in which a monetary authority can have genuine confidence. I argue that the current state of economic research—both empirical and theoretical—provides little basis for believing in significant observable benefits […] -
Forecasting Inflation with the M1-VECM: Part Two
A central bank's main concern is the general direction of future inflation, and not transitory fluctuations of the inflation rate. As a result, this paper is concerned with forecasting a simple measure of the trend of inflation, the eight-quarter CPI-inflation rate. The primary objective is to improve the M1-based vector-error-correction model (VECM) developed by Hendry […] -
Predicting Canadian Recessions Using Financial Variables: A Probit Approach
This paper examines the ability of a number of financial variables to predict Canadian recessions. Regarding methodology, we follow closely the technique employed by Estrella and Mishkin (1998), who use a probit model to predict U.S. recessions up to eight quarters in advance. Our main finding is that the spread between the yield on Canadian […] -
The Benefits of Low Inflation: Taking Stock
This paper surveys the empirical literature on the benefits of low inflation, emphasizing contributions since 1990. It follows the framework of a section in the Bank's 1990 Annual Report, "The benefits of price stability." -
A Measure of Underlying Inflation in the United States
A monetary authority with the primary objective of price stability has to distinguish between temporary price shocks and persistent shocks to the rate of inflation. A measure of underlying inflation, therefore, has an important role to play as a guideline for monetary policy. -
Menu Costs, Relative Prices, and Inflation: Evidence for Canada
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. -
A Band-Aid Solution to Inflation Targeting
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. -
Mesures du taux d'inflation tendanciel
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. -
La courbe de Phillips au Canada : un examen de quelques hypothèses
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.