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Declining Inflation Persistence in Canada: Causes and Consequences




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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  • Rhys Mendes & Stephen Murchison, 2009. "Declining Inflation Persistence in Canada: Causes and Consequences," Bank of Canada Review, Bank of Canada, vol. 2009(Winter), pages 5-18.
  • Handle: RePEc:bca:bcarev:v:2010:y:2010:i:winter09-10:p:5-18

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    References listed on IDEAS

    1. Weise, Charles L, 1999. "The Asymmetric Effects of Monetary Policy: A Nonlinear Vector Autoregression Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 85-108, February.
    2. Rhee, Wooheon & Rich, Robert W., 1995. "Inflation and the asymmetric effects of money on output fluctuations," Journal of Macroeconomics, Elsevier, vol. 17(4), pages 683-702.
    3. Thoma, Mark A., 1994. "Subsample instability and asymmetries in money-income causality," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 279-306.
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    Cited by:

    1. Monica Jain, 2013. "Perceived Inflation Persistence," Staff 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.
    3. Olivier Gervais & Marc-André Gosselin, 2014. "Analyzing and Forecasting the Canadian Economy through the LENS Model," Technical Reports 102, Bank of Canada.

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