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

Akhter Faroque and Ryan Minor

Applied Economics, 2009, vol. 41, issue 8, pages 1003-1017

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.

Date: 2009

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