Exploring inflation dynamics in Canada: A threshold vector autoregressive approach

Yiguo Sun and Anastasia Dimiski

The Journal of Economic Asymmetries, 2024, vol. 30, issue C

Abstract: Given the pivotal role of inflation expectations in contemporary monetary policy, we posit that if monetary policy has effectively influenced inflation expectations, thereby altering the trajectory of total inflation, a structural break in the path of total inflation should be observable. Conversely, if inflation expectations have remained stable and monetary policy has had limited impact, a stable vector autoregressive (VAR) model should adequately describe the path of total inflation. To address these hypotheses, a non-linear specification of a threshold vector autoregressive (TVAR) model is employed, offering a comprehensive analytical framework for the examination of these dynamics.

Keywords: Core inflation; Total inflation; TVAR model (search for similar items in EconPapers)
JEL-codes: C11 C38 I21 J24 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:30:y:2024:i:c:s1703494924000136

DOI: 10.1016/j.jeca.2024.e00364

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