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On the Nature and the Stability of the Canadian Phillips Curve

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  • Maral Kichian

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.

Suggested Citation

  • Maral Kichian, 2001. "On the Nature and the Stability of the Canadian Phillips Curve," Staff Working Papers 01-4, Bank of Canada.
  • Handle: RePEc:bca:bocawp:01-4
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    References listed on IDEAS

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    1. Randall Wray, 1993. "Government Deficits, Liquidity Preference, and Schumpeterian Innovation," Economics Working Paper Archive wp_99, Levy Economics Institute.
    2. Athanasios Orphanides & Simon van Norden, 2002. "The Unreliability of Output-Gap Estimates in Real Time," The Review of Economics and Statistics, MIT Press, pages 569-583.
    3. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, pages 1243-1272.
    4. Haubrich, Joseph G. & Santos, Joao A. C., 2005. "Banking and commerce: A liquidity approach," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 271-294, February.
    5. Kichian, Maral, 1999. "Measuring Potential Output within a State-Space Framework," Staff Working Papers 99-9, Bank of Canada.
    6. Doyle, Matthew & Beaudry, Paul, 2000. "What Happened to the Phillips Curve in the 1990s in Canada," Staff General Research Papers Archive 10286, Iowa State University, Department of Economics.
    7. Dupasquier, Chantal & Ricketts, Nicholas, 1998. "Non-Linearities in the Output-Inflation Relationship: Some Empirical Results for Canada," Staff Working Papers 98-14, Bank of Canada.
    8. Pierre Fortin, 1996. "The Great Canadian Slump," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 761-787, November.
    9. Jonathan McCarthy, 2007. "Pass-Through of Exchange Rates and Import Prices to Domestic Inflation in Some Industrialized Economies," Eastern Economic Journal, Eastern Economic Association, pages 511-537.
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    Citations

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    Cited by:

    1. Frédérick Demers & Annie De Champlain, 2005. "Forecasting Core Inflation in Canada: Should We Forecast the Aggregate or the Components?," Staff Working Papers 05-44, Bank of Canada.
    2. Bouakez, Hafedh & Rebei, Nooman, 2008. "Has exchange rate pass-through really declined? Evidence from Canada," Journal of International Economics, Elsevier, pages 249-267.
    3. Khalaf, Lynda & Kichian, Maral, 2003. "Are New Keynesian Phillips Curved Identified?," Cahiers de recherche 0312, GREEN.
    4. 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.
    5. Eiji Fuji & Jeannine Bailliu, 2004. "Exchange Rate Pass-Through and the Inflation Environment in Industrialized Countries: An Empirical Investigation," Computing in Economics and Finance 2004 135, Society for Computational Economics.
    6. Lynda Khalaf & Maral Kichian, 2006. "Structural Change in Covariance and Exchange Rate Pass-Through: The Case of Canada," Staff Working Papers 06-2, Bank of Canada.
    7. Nicholas Rowe & David Tulk, 2003. "A Simple Test of Simple Rules: Can They Improve How Monetary Policy is Implemented with Inflation Targets?," Staff Working Papers 03-31, Bank of Canada.
    8. Kevin Clinton, 2006. "Core inflation at the Bank of Canada: A critique," Working Papers 1077, Queen's University, Department of Economics.
    9. 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.
    10. Maral Kichian, 2012. "Financial Conditions and the Money-Output Relationship in Canada," Staff Working Papers 12-33, Bank of Canada.
    11. Eva Ortega & Nooman Rebei, 2006. "The Welfare Implications of Inflation versus Price-Level Targeting in a Two-Sector, Small Open Economy," Staff Working Papers 06-12, Bank of Canada.
    12. 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.
    13. Lynda Khalaf & Maral Kichian, 2003. "Testing the Stability of the Canadian Phillips Curve Using Exact Methods," Staff Working Papers 03-7, Bank of Canada.
    14. Hafedh Bouakez & Nooman Rebei, 2005. "Has Exchange Rate Pass-Through Really Declined in Canada?," Staff Working Papers 05-29, Bank of Canada.
    15. Jeannine Bailliu & Daniel Garcés & Mark Kruger & Miguel Messmacher, 2003. "Explaining and Forecasting Inflation in Emerging Markets: The Case of Mexico," Staff Working Papers 03-17, Bank of Canada.

    More about this item

    Keywords

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

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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