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How Has Inflation Changed in Canada? A Comparison of 1989­2001 to 1964­1988

  • David R. Johnson
  • Sebastian Gerlich
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    Has the inflation process fundamentally changed in Canada in the last decade? We compare the dynamics of inflation from 1964 through 1988 to the dynamics of inflation from 1989 to 2001. Although the average rate of inflation fell and inflation has become less variable since 1988, we conclude that the dynamics of inflation have not changed substantially. A negative output gap reduces inflation and the adjustment of expected inflation to lagged actual inflation continues to be slow. The sacrifice ratio, the short-run inflation-output trade-off remains similar. The makers of monetary policy in Canada face the same trade-offs before and after 1988.

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    Article provided by University of Toronto Press in its journal Canadian Public Policy.

    Volume (Year): 28 (2002)
    Issue (Month): 4 (December)
    Pages: 563-579

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    Handle: RePEc:cpp:issued:v:28:y:2002:i:4:p:563-579
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    1. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
    2. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
    3. Johnson, D.R., 1990. "An Evolution Of The Bank Of Canada Zero Inflation Target: Do Michael Wilson And John Crow Agree?," Working Papers 90138, Wilfrid Laurier University, Department of Economics.
    4. 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.
    5. Pierre Fortin, 1993. "The Unbearable Lightness of Zero-Inflation Optimism," Cahiers de recherche CREFE / CREFE Working Papers 15, CREFE, Université du Québec à Montréal.
    6. Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Working Papers 01-4, Bank of Canada.
    7. Thomas Jordan, 1997. "Disinflation costs, accelerating inflation gains, and central bank independence," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(1), pages 1-21, March.
    8. Thomas Laubach & Adam Posen, 1997. "Some comparative evidence on the effectiveness of inflation targeting," Research Paper 9714, Federal Reserve Bank of New York.
    9. David R. Johnson, 1990. "An Evaluation of the Bank of Canada Zero Inflation Target: Do Michael Wilson and John Crow Agree?," Canadian Public Policy, University of Toronto Press, vol. 16(3), pages 308-325, September.
    10. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
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