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Has the Inflation Process Changed? Selective Review of Recent Research on Inflation Dynamics

Author

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  • Oleksiy Kryvtsov
  • James MacGee

Abstract

For most of 2011–19, inflation in Canada and advanced economies registered below inflation targets. This has spurred a debate on whether “lowflation” is a temporary phenomenon or rather a sign of a fundamental change in inflation behaviour—in Canada and globally. So far, we know little. Global factors—changes in the price of oil and shifts in trade due to globalization—can only explain a portion of the fluctuations in domestic inflation. Emerging survey data are showing that inflation expectations of managers and households behave very differently from model expectations based on full information and rational behaviour. Recent surveys using randomized control trials reveal that changes in monetary or fiscal policies may lead to unexpected responses of inflation expectations and firm behaviour. Changes in the markets for consumer goods raise the need for us to rethink the methods for measuring inflation. We discuss the questions that these observations bring up for central bankers.

Suggested Citation

  • Oleksiy Kryvtsov & James MacGee, 2020. "Has the Inflation Process Changed? Selective Review of Recent Research on Inflation Dynamics," Discussion Papers 2020-11, Bank of Canada.
    • Handle: RePEc:bca:bocadp:20-11
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    References listed on IDEAS

    as
    1. David Andolfatto & Andrew Spewak, 2019. "Understanding Lowflation," Review, Federal Reserve Bank of St. Louis, vol. 101(1), pages 1-26.
    2. Charles Bellemare & Rolande Kpekou Tossou & Kevin Moran, 2020. "The Determinants of Consumers' Inflation Expectations: Evidence from the US and Canada," Staff Working Papers 20-52, Bank of Canada.
    3. Raphael A. Auer & Claudio Borio & Andrew Filardo, 2017. "The Globalisation of Inflation: The Growing Importance of Global Value Chains," CESifo Working Paper Series 6387, CESifo.
    4. Sanjana Bhatnagar & Anne-Katherine Cormier & Kristina Hess & Patrisha de Leon-Manlagnit & Elise Martin & Vikram Rai & Renaud St-Cyr & Subrata Sarker, 2017. "Low Inflation in Advanced Economies: Facts and Drivers," Staff Analytical Notes 17-16, Bank of Canada.
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    Cited by:

    1. Brouwer, Nils & de Haan, Jakob, 2022. "Trust in the ECB: Drivers and consequences," European Journal of Political Economy, Elsevier, vol. 74(C).

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    More about this item

    Keywords

    Central bank research; Inflation and prices; Monetary policy;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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