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

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  • Dupasquier, Chantal
  • Ricketts, Nicholas
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    Abstract

    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 time-varying sacrifice ratio. Evidence for four different types of asymmetry is presented in the context of short-run Phillips curves estimated in a state-space framework. The results suggest that there is significant time variation in the trade-off in Canada, but that it is difficult to distinguish definitively among the possible models generating the non-linearity.

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    File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/05/wp98-14.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Working Papers with number 98-14.

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    Length: 31 pages
    Date of creation: 1998
    Date of revision:
    Handle: RePEc:bca:bocawp:98-14

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    Related research

    Keywords: Inflation; Productivity;

    References

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    1. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    2. Jean-François Fillion & André Léonard, 1997. "La courbe de Phillips au Canada : un examen de quelques hypothèses," Working Papers 97-3, Bank of Canada.
    3. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    4. Peter B. Clark & Douglas Laxton & David Rose, 1995. "Capacity Constraints, Inflation and the Transmission Mechanism," IMF Working Papers 95/75, International Monetary Fund.
    5. Nicholas Ricketts & David Rose, . "Inflation, Learning And Monetary Policy Regimes In The G-7 Economies," Working Papers 95-6, Bank of Canada.
    6. Laurence Ball & N. Gregory Mankiw & David Romer, 1988. "The New Keynsesian Economics and the Output-Inflation Trade-off," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 1-82.
    7. P Clark & D Laxton, 1997. "Phillips Curves," CEP Discussion Papers dp0344, Centre for Economic Performance, LSE.
    8. Ball, Laurence & Mankiw, N Gregory, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," Economic Journal, Royal Economic Society, vol. 104(423), pages 247-61, March.
    9. Tiff Macklem, 1997. "Capacity constraints, price adjustment, and monetary policy," Bank of Canada Review, Bank of Canada, vol. 1997(Spring), pages 39-56.
    10. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, vol. 74(2), pages 350-55, May.
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    Cited by:
    1. Dungey, Mardi & Pitchford, John, 2000. "The Steady Inflation Rate of Economic Growth," The Economic Record, The Economic Society of Australia, vol. 76(235), pages 386-400, December.
    2. Pierre-Richard Agénor & Nihal Bayraktar, 2008. "Contracting Models of the Phillips Curve Empirical Estimates for Middle-Income Countries," Centre for Growth and Business Cycle Research Discussion Paper Series 94, Economics, The Univeristy of Manchester.
    3. Miguel St. Aubyn, 2000. "Testing for Asymmetry in the Inflation-Unemployment Trade-off: Some Evidence for the USA," Working Papers Department of Economics 2000/05, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
    4. Eliasson, Ann-Charlotte, 2001. "Is the Short-run Phillips Curve Nonlinear? Empirical Evidence for Australia, Sweden and the United States," Working Paper Series 124, Sveriges Riksbank (Central Bank of Sweden).
    5. Luis Fernando Melo Velandia & Martha Alicia Misas Arango, 2004. "Modelos Estructurales de Inflación en Colombia: Estimación a través de Mínimos Cuadrados Flexibles," BORRADORES DE ECONOMIA 003244, BANCO DE LA REPÚBLICA.
    6. Kichian, Maral, 1999. "Measuring Potential Output within a State-Space Framework," Working Papers 99-9, Bank of Canada.

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