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282
result(s)
October 5, 2005
The Exchange Rate and Canadian Inflation Targeting
An essential element of the Bank of Canada's inflation-targeting framework is a floating exchange rate that is free to adjust in response to shocks that affect the Canadian and world economies. This floating rate plays an important role in the transmission mechanism for monetary policy. A practical question is how the Bank of Canada incorporates currency movements into the monetary policy decision-making process. Only after determining the cause and persistence of exchange rate change, and its likely net effect on aggregate demand, can the Bank decide on the appropriate policy response to keep inflation low, stable, and predictable. Ragan reviews the need to target inflation and the transmission mechanism for monetary policy, including the role of the exchange rate, before describing two types of exchange rate movements and their implications for monetary policy.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Exchange rates,
Inflation targets,
Monetary policy implementation
Has Exchange Rate Pass-Through Really Declined in Canada?
Staff Working Paper 2005-29
Hafedh Bouakez,
Nooman Rebei
Several empirical studies suggest that exchange rate pass-through has declined in recent years in industrialized countries.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Business fluctuations and cycles,
Economic models,
Exchange rates,
Inflation and prices,
International topics
JEL Code(s):
F,
F3,
F4
Inflation and Relative Price Dispersion in Canada: An Empirical Assessment
Staff Working Paper 2005-28
André Binette,
Sylvain Martel
The authors investigate empirically the relationship between different aspects of inflation and relative price dispersion in Canada using a Markov regime-switching Phillips curve.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices
JEL Code(s):
C,
C3,
C32,
E,
E3,
E31
Inflation Dynamics and the New Keynesian Phillips Curve: An Identification-Robust Econometric Analysis
Staff Working Paper 2005-27
Jean-Marie Dufour,
Lynda Khalaf,
Maral Kichian
The authors use identification-robust methods to assess the empirical adequacy of a New Keynesian Phillips curve (NKPC) equation.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Econometric and statistical methods,
Inflation and prices
JEL Code(s):
C,
C1,
C13,
C5,
C52,
E,
E3,
E31
Endogenous Central Bank Credibility in a Small Forward-Looking Model of the U.S. Economy
Staff Working Paper 2005-16
René Lalonde
The linkages between inflation and the economy's cyclical position are thought to be strongly affected by the credibility of monetary authorities.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Econometric and statistical methods,
Inflation and prices,
Monetary policy transmission
JEL Code(s):
C,
C3,
C32,
E,
E5,
E52
State-Dependent or Time-Dependent Pricing: Does It Matter for Recent U.S. Inflation?
Staff Working Paper 2005-4
Peter J. Klenow,
Oleksiy Kryvtsov
Inflation equals the product of two terms: an extensive margin (the fraction of items with price changes) and an intensive margin (the average size of those changes).
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Inflation and prices
JEL Code(s):
E,
E3,
E31,
E32
December 23, 2004
A Survey of the Price-Setting Behaviour of Canadian Companies
To better understand price-setting behaviour in the Canadian economy, the Bank of Canada's regional offices surveyed a representative sample of 170 firms between July 2002 and March 2003. The authors discuss the reasons behind the survey, the methodology used to develop the questionnaire and conduct the interviews, and summarize the results. The study also assessed several explanations for holding prices steady despite market pressures for a change. The survey findings indicate that prices in Canada are relatively flexible and have become more flexible over the past decade. Price stickiness was generally found to originate in firms' fears of antagonizing customers or disturbing the goodwill or reputation developed with them. A detailed discussion of the results includes a consideration of their implications for monetary policy.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Inflation and prices,
Monetary policy transmission
November 24, 2004
Asset Prices and Monetary Policy: A Canadian Perspective on the Issues
The issue addressed in this article is the extent to which monetary policy in Canada should respond to asset-price bubbles. The article concludes that maintaining low and stable consumer price inflation is the best contribution that monetary policy can make to promoting economic and financial stability, even when the economy experiences asset-price bubbles. In extreme circumstances—when an asset-price bubble is well identified and likely to have significant costs to the economy when it bursts—monetary policy might better maintain low and stable consumer price inflation by leaning against a particular bubble even though it may mean that inflation deviates temporarily from its target. Such a strategy might reduce the risk that a crash in asset prices could lead to a recession and to inflation markedly below target in the longer run. The circumstances where this strategy is possible will be rare because economists are far from being able to determine consistently and reliably when leaning against a particular bubble is likely to do more harm than good. Housing-price bubbles should be a greater concern for Canadian monetary policy than equity-price bubbles, since rising housing prices are more likely to reflect excessively easy domestic credit conditions than are equity prices, which are largely determined in global markets.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Inflation targets,
Monetary and financial indicators,
Monetary policy framework
November 23, 2004
Real Return Bonds: Monetary Policy Credibility and Short-Term Inflation Forecasting
The break-even inflation rate (BEIR) is calculated by comparing the yields on conventional and Real Return Bonds. Defined as the average rate of inflation that equates the expected returns on these two bonds, the BEIR has the potential to contain useful information about long-run inflation expectations. Yet the BEIR has been higher, on average, and more variable than survey measures of inflation expectations, which may be explained by the effects of premiums and distortions embedded in the BEIR. Because of the difficulty in accounting for these distortions, the BEIR should not be given a large weight as a measure of long-run inflation expectations at this time. However, as the Real Return Bond market continues to develop, the BEIR should become a more useful indicator of inflation expectations. At present, it demonstrates no clear advantage over survey measures and even past inflation rates in forecasting near-term inflation.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Inflation and prices,
Interest rates,
Market structure and pricing