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Declining Inflation Persistence in Canada: Causes and Consequences

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Abstract

The persistence of both core and total consumer price index inflation in Canada has declined significantly since the 1980s. In addition to providing up-to-date estimates of inflation persistence, this article examines possible reasons for the decline suggested in the literature. The role played by monetary policy, through its effect on price- and wage-setting behaviour, is distinguished from possible changes to the structure of the economy that are independent of monetary policy. The authors also discuss the implications for monetary policy of low structural persistence in inflation, including the choice of an inflation-targeting regime versus a price-level-targeting regime.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/06/mendes_murchison.pdf
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Bibliographic Info

Article provided by Bank of Canada in its journal Bank of Canada Review.

Volume (Year): 2009-2010 (2009-2010)
Issue (Month): Winter ()
Pages: 5-18

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Handle: RePEc:bca:bcarev:v:2010:y:2010:i:winter09-10:p:5-18

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Cited by:
  1. Monica Jain, 2013. "Perceived Inflation Persistence," Working Papers 13-43, Bank of Canada.
  2. Rhys Mendes, 2013. "Understanding commodity price cycles in emerging Asia and their implications for monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and inflation dynamics in Asia and the Pacific, volume 70, pages 67-69 Bank for International Settlements.

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