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Why Is Canada's Price Level So Predictable?

Ondra Kamenik, Heesun Kiem, Vladimir Klyuev and Douglas Laxton ()

Journal of Money, Credit and Banking, 2013, vol. 45, issue 1, 71-85

Abstract: 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.

Date: 2013
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Journal Article: Why Is Canada's Price Level So Predictable? (2013) Downloads
Working Paper: Why is Canada’s Price Level So Predictable? (2008) Downloads
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Handle: RePEc:wly:jmoncb:v:45:y:2013:i:1:p:71-85