Inflation In Canada Research Articles

An Empirical Investigation of Bitcoin Hedging Capabilities against Inflation using VECM: The Case of United States, Eurozone, Philippines, Ukraine, Canada, India, and Nigeria

This study examines Bitcoin's potential as an inflation hedge in different countries, including the United States, the Eurozone, the Philippines, Ukraine, Canada, India, and Nigeria. The study reveals varying results across countries using the Vector Error Correlation Model (VECM) with secondary monthly data from January 2012 to June 2023 for Bitcoin prices and inflation rates. Bitcoin exhibits an insignificant short-term relationship in the United States but a significant long-term negative correlation, suggesting it may not be a reliable inflation hedge. Similarly, no significant relationship was found in the Eurozone, the Philippines, Ukraine and Nigeria, indicating Bitcoin's limited effectiveness as an inflation hedge. Contrastingly, the study identifies a significant positive relationship between Bitcoin and inflation in Canada and India, indicating potential hedging against inflation within these economies. Therefore, investors, portfolio managers, and policymakers should consider these country-specific findings when evaluating Bitcoin's role as an inflation hedge. Furthermore, this study contributes valuable insights into cryptocurrencies and their potential in financial risk management.

Social Policy Responses to Rising Inflation in Canada and the United States

Abstract Social policies’ responsiveness to rising inflation depends in large part on whether they contain automatic indexation mechanisms, which ensure that the real value of wages and benefits expands during inflationary periods. Here we compare how the indexation of Canadian and U.S. policies on pensions, minimum wages, and food security have affected their responsiveness to the recent cost-of-living crisis. Three main conclusions emerge from our analysis. First, automatic indexation is not necessarily a silver bullet to avoid policy drift. Second, automatic indexation and its design are not the only factors that matter to determine whether high inflation leads to policy drift. Finally, in times of higher inflation, social programs that lack automatic indexation can avoid policy drift, as long as a strong political consensus allows for ad hoc social policy expansion capable of offsetting the negative effects of inflations on social benefits.

Canadian food inflation: International dynamics and local agency

AbstractWe offer a descriptive analysis of the complexities surrounding food price inflation in Canada three years after the outbreak of COVID‐19. The Consumer Price Index and its food component have registered significant shifts since 2020 and remain elevated. This behavior is influenced by international dynamics, such as the conflict between Russia and Ukraine and the consequent commodity price surges, and domestic factors, including grocery market concentration. As external events interact with local policies, business practices, and the structure of the food retail industry, debates around market competition intensify. We posit that while the influence of international factors on local prices is undeniable, fostering domestic grocery competition remains crucial. At the same time, managing expectations of major price reductions in a small open economy like Canada's is important. In addition, we discuss some of the research and data needs that have become salient during the current inflationary episode.

The Rise (and Fall?) of Inflation in Canada: A Detailed Analysis of Its Post-Pandemic Experience

Le taux d’inflation au Canada a atteint des sommets générationnels en 2022. La présente étude examine cette hausse rapide. En utilisant de nouvelles méthodes et des données détaillées sur la consommation des ménages, l’article identifie séparément les hausses de prix induites par la demande et l’offre. Nous constatons que cette dernière explique la majeure partie de la hausse de l’inflation, en particulier en ce qui concerne les produits à forte consommation d’énergie et les produits fortement échangés. En outre, nous constatons que les produits dont les prix varient de manière normalement transitoire, ou qui sont particulièrement sensibles aux taux d’intérêt sont à l’origine de la quasi-totalité de l’augmentation. Cette étude jette un éclairage nouveau et important sur les tendances récentes de l’inflation et illustre de nouvelles méthodes empiriques capables d’apporter une valeur ajoutée aux efforts de surveillance de l’inflation au Canada.

The Rise (And Fall?) of Inflation in Canada: A Detailed Analysis of Its Post-Pandemic Experience

The Rise (And Fall?) of Inflation in Canada: A Detailed Analysis of Its Post-Pandemic Experience

UNDERSTANDING CONSUMER PRICE INDEX DYNAMICS IN CANADA

This research uses annual time series data on Consumer Price Index (CPI) in Canada from 1960 to 2017, to model and forecast CPI using the Box – Jenkins ARIMA technique. Diagnostic tests indicate that the C series is I (1). The study presents the ARIMA (1, 1, 1) model for predicting CPI in Canada. The diagnostic tests further show that the presented parsimonious model is stable. The results of the study apparently show that CPI in Canada is likely to continue on a sharp upwards trajectory in the next decade. The study encourages policy makers to make use of tight monetary and fiscal policy measures in order to control inflation in Canada.

Performance of fixed-income mutual funds with regime-switching models

We use Markovian regime-switching models to assess the performance of Canadian fixed-income mutual funds from 1980 to 2011. Fund returns are well described by two distinct volatility related bull and bear regimes. While the selection performance of Canadian fixed-income funds is negative, it is regime dependent and deteriorates during recessions. We also find mixed results on the timing ability of fund managers with poor performance for Canadian inflation protected fixed-income funds, Canadian long-term fixed-income funds, and Canadian money market funds groups. Finally, we show that a multivariate regime-switching model is superior to univariate models given the dynamic market conditions and the fund portfolios’ cross-correlations.

Canadian inflation targeting

AbstractThis paper examines the intellectual environment in Canada that led to the adoption of inflation targets starting in 1991, reviews some of the Canadian contributions to the vast literature on inflation targeting and presents evidence in support of the view that the implementation of inflation targeting in Canada has been particularly successful when compared with the experiences of other inflation‐targeting countries and the US.

Macroeconomic Switching Regimes and Monetary Policy in Canada

This study examines the behaviour of monetary policy in Canada over the last 40 years using a Markov-switching VAR model of the macroeconomy. The Markov-switching estimates capture three continuous regimes that are interpreted as the ‘surprise’ regime from 1972Q1 to 1982Q2, the ‘recovery’ regime from 1982Q3 to 1991Q3 and the ‘target’ regime from 1991Q4 to 2014Q4. Monetary policy multipliers for the output gap are greater than one for all three regimes, suggesting that the central bank does not accommodate any expected changes in inflation over the long-run due to the domestic relationship between the output gap and future inflation. The long-run multipliers for inflation are equal to one in the surprise and recovery regimes, indicating that monetary policy also responds to offset inflation shocks. Overall, the policy multipliers and impulse response functions indicate a proactive central bank that responds systematically to movements in the output gap in order to control expected future inflation and to inflation surprises in the three regimes. The regime-dependent behaviour of monetary policy indicates a central bank pursuing an implicit form of inflation targeting as a means of achieving a nominal anchor for policy. The implicit inflation tar­gets are consistent with historical episodes of inflation in Canada over the past 40 years.

Is there a quality bias in the Canadian CPI? Evidence from microdata

AbstractRising consumer prices may reflect shifts by consumers to new higher‐priced products, mostly for durable and semi‐durable goods. I apply Bils’ (2009) methodology to newly available Canadian consumer price data for non‐shelter goods and services to estimate how price increases can be divided between quality growth and price inflation. I find that less than one third of observed price increases during model changeovers should be attributed to quality growth. This implies overall price inflation close to inflation measured by the official index. I conclude that, according to Bils’ methodology, the quality bias is not an important source of potential mismeasurement of CPI inflation in Canada.

The Politics of Canadian Monetary Policy: Reassessing Canadian Inflation, Part II

:This is the second installment of a two-part article on Canadian inflation. This article builds on the traditional conflict theory of inflation by applying insights from the post-Keynesian and micro-politics theories of money and central bank policy. It argues that the Bank of Canada’s inflation targets — not just inflation itself — have to be understood in terms of social conflict and power. This analysis extends the evidence on the distributive implications of Canadian inflation offered in Part I.

Some Inflationary Aspects of Distributive Conflict:Reassessing Canadian Inflation, Part I

This is the first installment of a two-part article, in which we explore the empirical validity of the post-Keynesian “conflict inflation” theory for Canada. By documenting the numerous points of contact between Canadian inflation, on one hand, and institutional power and distributive conflict, on the other, we argue that inflation may be validly understood as a power process insofar as it feeds on social conflict and is systematically associated with the redistribution of income between different income groups. Over the past century, Canadian inflation has tended to redistribute income from capital to labor, from large to small firms, and from the upper to the lower income brackets. Given these facts, Canadian inflation must be understood as a political phenomenon.

Forecasting the Unit Price of Water and Wastewater Pipelines Capital Works and Estimating Contractors’ Markup

Municipalities and water utilities need to make realistic estimates for the replacement of their aged water and wastewater pipelines. The two main objectives of this article are to present a method to forecast the unit price of water and wastewater pipelines capital works by investigating inflation in their construction price, and to quantify the markup that contractors add to bid a project price. The Geometric Brownian Motion model with drift is used for investigation. Results show that the inflation in water and wastewater pipelines reference projects were 6.41% and 5.52% per annum, respectively. These values compare to the inflation in the Standard & Poor’s/Toronto Stock Exchange (S&P/TSX) Composite Index of 6.93% per annum. In contrast, inflation in Canada’s Consumer Price Index (CPI), and Engineering News-Record’s Construction Cost Index (ENR’s CCI) for Toronto are estimated to be 2.53% and 2.85% per annum, respectively. The spread in the inflation rate between the reference price indices and that of...

Forecasting Canadian inflation: A semi-structural NKPC approach

We examine whether alternative versions of the New Keynesian Phillips Curve equation contain useful information for forecasting the inflation process. We notably consider semi-structural specifications which combine, for closed- and open-economy versions of the model, the structural New Keynesian equation with time series features. Estimation and inference are conducted using identification-robust methods to address the concern that NKPC models are generally weakly identified. Applications using Canadian data show that all the considered versions of the NKPC have a forecasting performance that comfortably exceeds that of a random walk equation, and moreover, that some NKPC versions also significantly outperform forecasts from conventional time series models. We conclude that relying on single-equation structural models such as the NKPC is a viable option for policymakers for the purposes of both forecasting and being able to explain to the public structural factors underlying those forecasts.

A new structural break model, with an application to Canadian inflation forecasting

This paper develops an efficient approach to modelling and forecasting time series data with an unknown number of change-points. Using a conjugate prior and conditioning on time-invariant parameters, the predictive density and the posterior distribution of the change-points have closed forms. Furthermore, the conjugate prior is modeled as hierarchical in order to exploit the information across regimes. This framework allows breaks in the variance, the regression coefficients, or both. The regime duration can be modelled as a Poisson distribution. A new, efficient Markov chain Monte Carlo sampler draws the parameters from the posterior distribution as one block. An application to a Canadian inflation series shows the gains in forecasting precision that our model provides.

Evidence of the Association between Household Food Insecurity and Heating Cost Inflation in Canada, 1998–2001

We investigated the 5.3 percentage point increase in the prevalence of food insecurity in Canada between the National Population Health Survey of 1998–99 and the Canadian Community Health Survey of 2000–01. We found that the increase in food insecurity occurred disproportionately in households in the western provinces, particularly Alberta, and among homeowners rather than renters. Inter-provincial variation in heating cost inflation explained as much as 61 percent of the inter-provincial variation in food insecurity increases between 1998 and 2001.

Evidence of the Association between Household Food Insecurity and Heating Cost Inflation in Canada, 1998–2001

We investigated the 5.3 percentage point increase in the prevalence of food insecurity in Canada between the National Population Health Survey of 1998–99 and the Canadian Community Health Survey of 2000–01. We found that the increase in food insecurity occurred disproportionately in households in the western provinces, particularly Alberta, and among homeowners rather than renters. Inter-provincial variation in heating cost inflation explained as much as 61 percent of the inter-provincial variation in food insecurity increases between 1998 and 2001.

Inflation, nominal portfolios, and wealth redistribution in Canada

Abstract This paper quantifies the redistributional effects of inflation in Canada that arise through the revaluation of nominal assets and liabilities. We find that the effects are non‐trivial even for low inflation episodes. The main winners are young, middle‐class households with mortgage debt. The government receives a windfall gain from its long‐term debt. The old, the rich or the middle‐aged, middle‐class lose, largely owing to their holdings of bonds and non‐indexed defined benefit pension assets. Finally, our Canada‐U.S. comparison reveals that the extent of redistributions can be quite different even between countries of similar economic and legal environments.

Can structural small open-economy models account for the influence of foreign disturbances?

This paper demonstrates that an estimated, structural, small open-economy model of the Canadian economy cannot account for the substantial influence of foreign-sourced disturbances identified in numerous reduced-form studies. The benchmark model assumes uncorrelated shocks across countries and implies that U.S. shocks account for less than 3% of the variability observed in several Canadian series, at all forecast horizons. Accordingly, model-implied cross-correlation functions between Canada and U.S. are essentially zero. Both findings are at odds with the data. A specification that assumes correlated cross-country shocks partially resolves this discrepancy, but still falls well short of matching reduced-form evidence. One central difficulty resides in the model's inability to account for comovement without generating counter factual implications for the real exchange rate, the terms of trade and Canadian inflation.

Using dynamic factor models to forecast Canadian inflation: the role of US variables1

This article evaluates the forecasting performance of dynamic factor models for Canadian inflation. We find that factor models are as good as more conventional forecasting models, while a model estimated using only US data, is at least as useful as a model that incorporates Canadian data. This suggests that the United States is a source of data that could be beneficial to its trading partners for forecasting purposes.