Staff discussion papers
Staff working papers
How Rigid Are Nominal-Wage Rates?
This study examines the effect of nominal-wage rigidities on wage growth in Canada using a hazard model and micro data for union contracts. The hazard model is specified in a way that allows considerable flexibility in the shape of the estimated notional wage-change distribution.Downward Nominal-Wage Rigidity: Micro Evidence from Tobit Models
This paper uses Tobit models and data for union contracts to examine the extent of downward nominal-wage rigidity in Canada. To be consistent with important stylized facts, the models allow the variance of the notional wage-change distribution to be time-varying and test for menu-cost effects.Does Inflation Uncertainty Vary with the Level of Inflation?
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.Technical reports
Measurement Biases in the Canadian CPI
The consumer price index (CPI) may be an imperfect measure of changes in the cost of living owing to measurement biases known as commodity substitution bias, new goods bias, quality bias and outlet substitution bias. When the sum of these individual biases is positive, the rate of change in the CPI overstates the increase in […]Bank publications
Bank of Canada Review articles
February 23, 2012
What Explains Trends in Household Debt in Canada?
Similar to the experiences in many other countries, household indebtedness in Canada has exhibited an upward trend over the past 30 years. Both mortgage and non-mortgage (consumer) credit have contributed to this development. In this article, the authors use microdata to highlight the main factors underlying the strong trend increase since the late 1990s. Favourable housing affordability, owing to factors such as income growth and low interest rates, has supported significant increases in home-ownership rates and mortgage debt. Much of the rise in consumer credit has been facilitated by higher housing values (used as collateral for loans) and financial innovation that makes it easier for households to access this credit.
April 7, 2009
Price-Level Uncertainty, Price-Level Targeting, and Nominal Debt Contracts
Many central banks around the world have embraced inflation targeting as a monetary policy framework. Interest is growing, however, in price-level targeting as an alternative. The choice of frameworks has important consequences for financial contracts, most of which are not fully indexed to the price level. Changes in the price level therefore lead to changes in the real value of contracts.
May 20, 2002
Trends in Productivity Growth in Canada
This article describes the major trends in the growth of labour productivity in Canada since the early 1960s and summarizes our current knowledge about the causes of the historical patterns. Particular attention is given to the period since the mid-1990s during which productivity growth has been significantly higher in the United States than in Canada. The author reviews the empirical evidence on the contribution of information and communication technology to the recent difference between Canadian and U.S. rates of productivity growth. Other determinants of a country's productivity performance, such as human capital formation and openness to international trade, are also examined. The article concludes with an assessment of the prospects for an increase in the trend rate of productivity growth in Canada over the coming years.
November 17, 2001
Predictability of Average Inflation over Long Time Horizons
Uncertainty about the level of future inflation adversely affects the economy because it distorts the savings and investment decisions of households and businesses. Since these decisions typically involve planning horizons of many years, the adverse effects from inflation uncertainty can be reduced by adopting a policy framework that makes future inflation more predictable over long time horizons. When the inflation-control target was renewed in May 2001, the agreement affirmed that monetary policy will be directed at moving inflation to the 2 per cent midpoint of the target range over a six-to-eight-quarter horizon. The author describes how this policy commitment increases the predictability of average inflation over periods longer than one year. This relationship is illustrated using the Canadian experience from the inflation-targeting period.
November 13, 2000
Seminar Summary: Price Stability and the Long-Run Target for Monetary Policy
On 8 and 9 June 2000, the Bank held a seminar to examine some key issues affecting the upcoming decision on Canada's inflation-control target for the period after 2001. The main issues covered at the seminar were the extent of downward nominal-wage rigidity and its implications for employment as well as the relative merits of price-level targeting versus inflation targeting. Another critical question that was discussed was how to balance the evidence on all the relevant issues in order to develop an overall view on the appropriate long-run target. The author gives a brief overview of the seminar followed by detailed summaries of individual papers.
December 14, 1998
Downward wage rigidity
There has recently been considerable discussion about the ability of inflation to facilitate the adjustment of prices and wages and thus enhance economic performance. The discussion centres on whether wages are downwardly rigid. Wages are said to be downwardly rigid if it is difficult for the wages of some workers to fall despite underlying supply and demand pressures for decreases. Some authors have suggested that if downward nominal wage rigidity is prevalent it would be desirable to select a positive rate of inflation as the target for monetary policy. In this article, the authors evaluate the wage-rigidity hypothesis. They first examine the empirical evidence to assess whether the degree of downward rigidity is significant in Canada. They then analyze some key assumptions of the wage-rigidity hypothesis and its implications for employment. They also look at the empirical evidence on whether the combination of downward wage rigidity and low inflation has reduced employment.
May 12, 1998