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Coletti and Lalonde compare inflation targeting and price-level targeting in the context of a small open economy subject to sizable terms-of-trade shocks. The authors summarize recent research that compares the ability of price-level targeting and inflation targeting to stabilize the macroeconomy when confronted with shocks similar to those experienced by Canada in recent years. Their preliminary results suggest that price-level targeting may represent a feasible alternative to traditional inflation targeting. Their article also provides insight into the direction of current research in this area at the Bank.

Since the advent of standard national accounts data over 60 years ago, economists have traditionally relied on monthly or quarterly data supplied by central statistical agencies for macroeconomic modelling and forecasting.

This paper studies the choice between general and specific human capital. A trade-off arises because general human capital, while less productive, can easily be reallocated across firms.

A covariance-stationary vector of variables has a Wold representation whose coefficients can be semi-parametrically estimated by local projections (Jordà, 2005). Substituting the Wold representations for variables in model expressions generates restrictions that can be used by the method of minimum distance to estimate model parameters.

Over the past 5 years, real energy and non-energy commodity prices have trended sharply higher. These relative price movements have had important implications for inflation and economic activity in both Canada and the rest of the world. China has accounted for the bulk of incremental demand for oil and many base metals over this period.

The author attempts to track Canadian labour productivity over the past four decades using a multivariate dynamic factor model that, in addition to the labour productivity series, includes aggregate compensation and consumption information. Productivity is assumed to switch between two regimes (the high-growth state and the low-growth state) with different trend growth rates according to […]

The author investigates the quantitative importance of the expenditure-switching effect by developing and estimating a structural sticky-price model nesting both producer currency pricing (PCP) and local currency pricing (LCP) settings.

Nowadays researchers can choose the sampling frequency of exchange rates and interest rates.

Trades in foreign exchange markets are initiated around the world and around the clock. This study illustrates that trades are more informative when initiated in a local country or in major foreign exchange centers like London and New York.

The author surveys recent articles on the costs and benefits of price-level targeting versus inflation targeting, focusing on the benefits and costs of price-level targeting as a tool for stabilization policy. He reviews papers that examine how price-level targeting affects the short-run trade-off between output and inflation variability by influencing expectations of future inflation. The […]