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The Behaviour of Consumer Prices Across Provinces

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  • Gordon Wilkinson
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    Abstract

    Measures of core inflation enable a central bank to distinguish price movements that are transitory and generated by non-monetary events from those that are more permanent and related to prior monetary policy decisions. The author uses standard statistical measures to assess the behaviour of consumer prices across provinces and identify price components with more divergent price patterns. The results indicate that energy, shelter and tobacco prices are the most volatile across provinces. Very large price movements restricted to one or a few provinces suggest that the forces or events triggering those movements may be province specific and unrelated to national demand pressures. Such results suggest that constructing a type of core inflation measure called the “trimmed mean” that excludes components with exceptionally large price changes at the provincial level may offer an alternative means of assessing underlying inflationary pressures.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2011/05/dp11-2.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Discussion Papers with number 11-2.

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    Length: 35 pages
    Date of creation: 2011
    Date of revision:
    Handle: RePEc:bca:bocadp:11-2

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    Keywords: Inflation and prices;

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    1. Benati, Luca, 2008. "Investigating inflation persistence across monetary regimes," Working Paper Series 0851, European Central Bank.
    2. Hogan, Seamus & Marianne Johnson & Thérèse Laflèche, 2001. "Core Inflation," Technical Reports 89, Bank of Canada.
    3. Svensson, Lars, 1999. "Price Stability as a Target for Monetary Policy: Defining and Maintaining Price Stability," Seminar Papers 673, Stockholm University, Institute for International Economic Studies.
    4. Joanne Cutler, 2001. "Core Inflation in the UK," Discussion Papers 03, Monetary Policy Committee Unit, Bank of England.
    5. David Archer, 1993. "Relative prices, inflation, the terms of trade and the Policy Targets Agreement," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 56, December.
    6. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    7. Christopher Ragan, 2006. "Why Monetary Policy Matters: A Canadian Perspective," Bank of Canada Review, Bank of Canada, vol. 2006(Winter), pages 19-25.
    8. Ajit Dayanandan & Mukesh Ralhan, 2005. "Price Index Convergence Among Provinces and Cities of Canada: 1978 - 2001," Econometrics Working Papers 0504, Department of Economics, University of Victoria.
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