Inflation: costs and benefits

• November 14, 1998

  Lower inflation: Benefits and costs

  Bank of Canada Review - Autumn 1998 Donald Coletti, Brian O'Reilly

  The federal government and the Bank of Canada have been committed for some time to achieving and maintaining price stability as a way to foster a rising standard of living for all Canadians. To support this objective, the inflation-control target range of 1 to 3 per cent was recently extended through to the end of 2001. By then, the government and the Bank plan to announce a long-run target for monetary policy. In this article, the authors provide an overview of the most recent empirical evidence on the benefits of lower inflation. They draw on an extensive earlier survey and on work presented at two recent conferences on price stability hosted by the Bank of Canada. They find that, when inflation and tax interactions are taken into account, there are large benefits to lowering inflation. When these benefits are compared with the transitional costs associated with lowering inflation, significant positive benefits remain. However, the authors note that the extension of the inflation-control targets to the end of 2001 allows further research to ensure an operational definition of price stability that will help Canadians achieve a high standard of living.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation: costs and benefits

• On the Believable Benefits of Low Inflation

  Staff Working Paper 1998-15 Christopher Ragan

  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 […]

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation: costs and benefits JEL Code(s): E, E3, E31

• Non-Linearities in the Output-Inflation Relationship: Some Empirical Results for Canada

  Staff Working Paper 1998-14 Chantal Dupasquier, Nicholas Ricketts

  This paper analyzes the short-run dynamic process of inflation in Canada and examines whether a systematic variation in the relationship between inflation and output can be detected over time. In the theoretical literature, different models of price-setting behaviour predict that the slope of the Phillips curve will be a function of macroeconomic conditions, implying a […]

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation: costs and benefits, Productivity

• The Benefits of Low Inflation: Taking Stock

  Technical Report No. 83 Brian O'Reilly

  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."

  Content Type(s): Staff research, Technical reports Topic(s): Inflation: costs and benefits JEL Code(s): E, E3