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Inflation regimes and the stability of the pass-through of wages to consumer prices in Canada

Author

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  • Akhter Faroque
  • Ryan Minor

Abstract

This article has formally identified distinct historical inflation regimes in Canada since 1961 in order to facilitate an investigation of the impact of regime changes on the wage-price dynamics in the economy. Both in and out-of-sample evidence suggest that wage growth exerts an influence on inflation only during a high-inflation regime but inflation exerts a more systematic and quantitatively stronger influence on wage growth regardless of the prevailing inflation regime. Overall, the results do not support either the 'cost-push' view of inflation or the 'new view' that claims that increased globalization during the 1990s has reduced the feedback from wage growth to inflation by weakening the bargaining power of workers.

Suggested Citation

  • Akhter Faroque & Ryan Minor, 2009. "Inflation regimes and the stability of the pass-through of wages to consumer prices in Canada," Applied Economics, Taylor & Francis Journals, vol. 41(8), pages 1003-1017.
    • Handle: RePEc:taf:applec:v:41:y:2009:i:8:p:1003-1017
    DOI: 10.1080/00036840601019133
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    References listed on IDEAS

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    1. Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Staff Working Papers 01-4, Bank of Canada.
    2. Frédérick Demers, 2003. "The Canadian Phillips Curve and Regime Shifting," Staff Working Papers 03-32, Bank of Canada.
    3. Kenneth S. Rogoff, 2003. "Globalization and global disinflation," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 77-112.
    4. Prodan, Ruxandra, 2008. "Potential Pitfalls in Determining Multiple Structural Changes With an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 50-65, January.
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    1. Christophe Blot & Jérôme Creel & Xavier Ragot, 2015. "Flexible inflation targeting vs nominal GDP targeting in the euro area," Sciences Po publications info:hdl:2441/5nf0balck39, Sciences Po.
    2. Christophe Blot & Jérôme Creel & Xavier Ragot, 2015. "Flexible inflation targeting vs nominal GDP targeting in the euro area," Working Papers hal-03429880, HAL.
    3. Creel, Jérôme & Hubert, Paul, 2015. "Has Inflation Targeting Changed The Conduct Of Monetary Policy?," Macroeconomic Dynamics, Cambridge University Press, vol. 19(1), pages 1-21, January.
    4. Canarella, Giorgio & Miller, Stephen M., 2017. "Inflation targeting and inflation persistence: New evidence from fractional integration and cointegration," Journal of Economics and Business, Elsevier, vol. 92(C), pages 45-62.
    5. Gärling, Tommy & Gamble, Amelie & Christandl, Fabian, 2013. "Income increases do not compensate for perceived inflation—A price-consumption anomaly," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 11-15.

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