Thérèse Laflèche - Latest
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June 11, 2006
Evaluating Measures of Core Inflation
Since the Bank of Canada adopted inflation targeting in 1991, it has focused on a measure of core inflation as a shorter-term guide for monetary policy. When the targets were renewed in 2001, the Bank adopted CPIX as its measure of core inflation because of the advantages it offered. Leflèche and Armour review the experience with CPIX and whether the criteria used to select it in 2001 still favour the measure today. They describe the various measures of core inflation monitored by the Bank and evaluate them on the basis of the volatility of the components, the volatility of the core measures themselves, absence of bias relative to total CPI, predictive power, and certain practical criteria, including timeliness and credibility. They conclude that CPIX still satisfies all the empirical and practical criteria. -
Core Inflation
The Bank of Canada uses core CPI inflation, the year-over-year rate of change of the consumer price index excluding food, energy, and the effects of changes in indirect taxes, as the operational guide for monetary policy. -
November 13, 1997
Statistical measures of the trend rate of inflation
As a guide for the conduct of monetary policy, most central banks make use of a trend inflation index similar to that employed by the Bank of Canada: the CPI excluding food, energy, and the effect of indirect taxes. In addition to their basic reference index, some central banks regularly publish statistical measures of the trend rate of inflation. The method used for producing these measures is, for the most part, based on the hypothesis that extreme price fluctuations generally reflect temporary shocks to the inflation rate, rather than its underlying trend. In this paper, the author offers a broad survey of studies on the measurement of trend inflation that have been published by the Bank of Canada and presents the results of the most recent work on the subject. Particular attention is paid to two statistical measures that the Bank follows more closely than other measures; namely, the CPIX, a price index that excludes eight of the most volatile CPI components, and CPIW, a measure that retains all the components of the overall index but gives a lower weighting to the most volatile. -
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. -
December 11, 1996
The impact of exchange rate movements on consumer prices
In the first, mostly theoretical, part of this article, the author analyses the factors that affect the pass-through of exchange rate movements to consumer prices. In the second part, she studies the recent Canadian experience in this area, starting from 1992. The analysis in the first part of the article is used to investigate why the depreciation of the Canadian dollar by almost 20 per cent between 1992 and 1994 did not produce as much of an increase in the inflation rate as predicted by conventional estimates of the exchange rate pass-through. The author first explains this phenomenon using the factors described in the theoretical part of the article: demand conditions, the costs of adjusting prices, and expectations about the depreciation's duration. She then examines the role of more specific factors, such as the abolition of customs duties on trade between Canada and the United States and the restructuring of the retail market. It is clear that the latter two factors helped neutralize the effect of the depreciation on prices. -
November 8, 1994
The demand for currency and the underground economy
The underground economy in Canada has attracted increased attention over the past few years, yet there is no precise way to measure its size. Recent estimates vary between 4 per cent and 15 per cent of gross domestic product. This article provides an overview of measurement issues and recent estimates. It then focusses on the "monetary" approach to estimating the size of the underground economy. This approach is based on the assumption that the demand for bank notes provides a clue as to the size of the underground economy. The article concludes that estimates that use this approach must be viewed with considerable caution. They are based on a number of assumptions that are difficult to verify and that significantly affect the results.