Premium
Why Is Canada's Price Level So Predictable?
Author(s) -
KAMENIK ONDRA,
KIEM HEESUN,
KLYUEV VLADIMIR,
LAXTON DOUGLAS
Publication year - 2013
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2012.00562.x
Subject(s) - inflation (cosmology) , economics , path (computing) , bayesian probability , econometrics , price level , interest rate , estimation , keynesian economics , macroeconomics , statistics , mathematics , computer science , physics , management , theoretical physics , programming language
This paper draws attention to the fact that the price level in Canada—which is an inflation targeter—has strayed little from the path it would have taken had inflation never wandered off the 2% target since its introduction and has tended to revert to that path after temporary deviations. Econometric analysis using Bayesian estimation suggests that a low probability can be assigned to explaining this behavior by mutually offsetting shocks. More plausible is the assumption that inflation expectations and interest rates are determined in a way that is consistent with an element of price‐level‐path targeting.