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On the Nature and the Stability of the Canadian Phillips Curve

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  • Maral Kichian
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    Abstract

    This paper empirically determines why, during the 1990s, inflation in Canada was consistently more stable than predicted by the fixed-coefficients Phillips curve. A time-varying-coefficient model, where all the parameters adjust simultaneously, shows that the behaviour of expectations was probably a major contributing factor. A decrease in the value of the coefficient on the first difference of the output gap also seems to have influenced the observed pattern of inflation. Finally, pass-through of relative price shocks into domestic prices is shown to have been low since 1983.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp01-4.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Working Papers with number 01-4.

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    Length: 30 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:bca:bocawp:01-4

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    Phone: 613 782-8845
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    Web page: http://www.bank-banque-canada.ca/

    Related research

    Keywords: Business fluctuations and cycles; Econometric and statistical methods; Inflation and prices;

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    Cited by:
    1. Pierre Fortin & George A. Akerlof & William T. Dickens & George L. Perry, 2002. "Inflation and Unemployment in the U.S. and Canada: A Common Framework," Cahiers de recherche du Département des sciences économiques, UQAM 20-16, Université du Québec à Montréal, Département des sciences économiques.
    2. David R. Johnson & Sebastian Gerlich, 2002. "How Has Inflation Changed in Canada? A Comparison of 1989­2001 to 1964­1988," Canadian Public Policy, University of Toronto Press, vol. 28(4), pages 563-579, December.
    3. P. Siklos, D. Waymark, 2006. "Measuring the Impact of Intervention on Exchange Market Pressure," Working Papers eg0048, Wilfrid Laurier University, Department of Economics, revised 2006.
    4. Jeannine Bailliu & Eiji Fujii, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Working Papers 04-21, Bank of Canada.
    5. Lynda Khalaf & Maral Kichian, 2006. "Structural Change in Covariance and Exchange Rate Pass-Through: The Case of Canada," Working Papers 06-2, Bank of Canada.
    6. Frédérick Demers & Annie De Champlain, 2005. "Forecasting Core Inflation in Canada: Should We Forecast the Aggregate or the Components?," Working Papers 05-44, Bank of Canada.
    7. Oinonen, Sami & Paloviita, Maritta & Vilmi , Lauri, 2013. "How have inflation dynamics changed over time? Evidence from the euro area and USA," Research Discussion Papers 6/2013, Bank of Finland.
    8. Lynda Khalaf & Maral Kichian, 2003. "Testing the Stability of the Canadian Phillips Curve Using Exact Methods," Working Papers 03-7, Bank of Canada.
    9. Bouakez, Hafedh & Rebei, Nooman, 2008. "Has exchange rate pass-through really declined? Evidence from Canada," Journal of International Economics, Elsevier, vol. 75(2), pages 249-267, July.
    10. Maral Kichian, 2012. "Financial Conditions and the Money-Output Relationship in Canada," Working Papers 12-33, Bank of Canada.
    11. Kevin Clinton, 2006. "Core inflation at the Bank of Canada: A critique," Working Papers 1077, Queen's University, Department of Economics.
    12. Nicholas Rowe & David Tulk, 2003. "A Simple Test of Simple Rules: Can They Improve How Monetary Policy is Implemented with Inflation Targets?," Working Papers 03-31, Bank of Canada.
    13. Hafedh Bouakez & Nooman Rebei, 2005. "Has Exchange Rate Pass-Through Really Declined in Canada?," Working Papers 05-29, Bank of Canada.
    14. Jeannine Bailliu & Daniel Garcés & Mark Kruger & Miguel Messmacher, 2003. "Explaining and Forecasting Inflation in Emerging Markets: The Case of Mexico," Working Papers 03-17, Bank of Canada.
    15. Eva Ortega & Nooman Rebei, 2006. "The Welfare Implications of Inflation versus Price-Level Targeting in a Two-Sector, Small Open Economy," Working Papers 06-12, Bank of Canada.

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