Empirical Economics

, Volume 8, Issue 1, pp 15–45 | Cite as

Anatomy of canadian inflation: An analysis with CANDIDE model 2.0

  • P. S. Rao
  • B. K. Lodh


The objective of this paper is to analyze the causes of inflation projected for Canada through out the 1980s, using CANDIDE Model 2.0 as reported in the 18th Annual Review base case. Our analysis suggests that, in the medium-run inflation is not only a monetary phenomenon but also caused by a host of other factors: external inflation, foreign interest rates, low productivity growth, labour market tightness, domestic energy pricing and indexation of wages to CPI, a measure of inflation that reflects both domestic and foreign price pressures.

Our results indicate that the restrictive aggregate damand policies alone will not make a significant dent in inflation without incurring substantial loss in output and employment. Our analysis suggests that we might better fight inflation using a balanced mix of aggregate demand and supply management policies and incentive based income policies.


Supply Management Income Policy Base Income Domestic Energy Price Pressure 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Atesoglu, H.S.: Inflation and Its Acceleration, Evidence from the Post War United States. Journal of Post-Keynesian EconomicsVII (1), 1980.Google Scholar
  2. Aubry, J.P., andL.R. Kenward: Canadian Inflation From 1971–1980: The Process and the Influence of Different Policy Mixes. Paper presented at International Symposium Forecasting. Quebec City 1981.Google Scholar
  3. Barber, C.L., andJ.C.P. McCallum: Unemployment and Inflation: The Canadian Experience. Ottawa, Canadian Institute for Economic Policy, 1980.Google Scholar
  4. Buiter, W.H.: The Macro-Economics of Dr. Pangloss — A Critical Review of the New-classical Macro-Economics. The Economic Journal, 1980.Google Scholar
  5. Carmichael, E.A.: Reassessing Canada's Potential Economic Growth. The Conference Board in Canada. 1979.Google Scholar
  6. Courchene, T.J.: The Attack on Monetarism: Muddled or Misdirected?. Canadian Public Policy, 1981.Google Scholar
  7. Donner, A.W., andD.D. Peters: The Monetarist Counter-Revolution: A Critique of Canadian Monetary Policy 1975–1979. Toronto 1979.Google Scholar
  8. Economic Council of Canada: The Inflation Dilemma: Thirteenth Annual Review, Ottawa 1976.Google Scholar
  9. -: CANDIDE 2.0, Model Description. Vols. 1 and 2. Ottawa 1979.Google Scholar
  10. -: A Climate of Uncertainty: Seventeenth Annual Review. Ottawa 1980.Google Scholar
  11. -: Room for Manoeuvre: Eighteenth Annual Review. Ottawa 1981.Google Scholar
  12. C.D. Howe Research Institute: Policy Review and Outlook 1979: Anticipating the Unexpected. 1979.Google Scholar
  13. Hulten, C.R., andM. Nishimizu: The Importance of Productivity Change in the Economic Growth of Nine Industrialized Countries. Lagging Productivity Growth: Causes and Remedies. Ed. by S. Malital and N. Meltz. Cambridge 1980.Google Scholar
  14. Jarret, J.P., andJ.G. Selody: The Productivity-Inflation Nexus in Canada 1963–1979. Bank of Canada, Technical Report No. 23, 1981.Google Scholar
  15. Laidler, D.: Inflation and Unemployment in an Open Economy: A Monetarist View. Canadian Public Policy, 1981.Google Scholar
  16. Lipsey, R.G.: Supply-Side Economics: A Survey. Paper presented to the Ontario Economic Council Conference on Supply-Side Economics. Toronto 1980.Google Scholar
  17. -: The Understanding and Control of Inflation: Is There a Crisis in Macro Economics? Canadian Economic Association Presidential Address. Halifax 1981.Google Scholar
  18. Lodh, B.K.: Price Formation in an Open Economy and the Relative Efficiency of Fiscal and Monetary Stabilization Policies: the Case of Canada. Economic Council of Canada. Discussion Paper No. 175, 1980.Google Scholar
  19. —: Inflation and Its Acceleration: Testing Alternative Hypotheses for Canada, 1954–1979, Draft Memorandum. Economic Council of Canada. Ottawa 1981.Google Scholar
  20. Ostry, S., andP.S. Rao: Productivity Trends in Canada. Lagging Productivity Growth: Causes and Remedies. Ed. by S. Marital and N. Meltz. Cambridge 1980.Google Scholar
  21. Parkin, M.: Watch Out for Falling Inflation. Unpublished paper. University of Western Ontario. 1981.Google Scholar
  22. Preston, R.S., andP.S. Rao: An Analysis of the Major Dynamic Properties of CANDIDE Model 2.0. Paper presented at the Comparative Models Seminar, held at the Bank of Canada. Ottawa. 1982.Google Scholar
  23. Rao, P.S.: An Econometric Analysis of Labour Productivity in Canadian Industries: Some Further Results. Economic Council of Canada, Discussion Paper No. 134, 1979.Google Scholar
  24. -: The Relative Impact of Wage-Price Controls and Wage-Indexation on Economic Growth and Price Stability. Economic Council of Canada, Discussion Paper No. 166, 1980.Google Scholar
  25. -: Factor Prices and Labour Productivity. Economic Council of Canada. Discussion Paper No. 194, 1981.Google Scholar
  26. Rao, P.S., andJ.D. Whillans: Impact of Foreign Prices and Interest Rates on Canadian Economy Under Alternative Monetary and Exchange Rate Regimes. Empirical Economics (Part I and II), 1981.Google Scholar
  27. Sims, H., andJ. Stanton: Recent Changes in Patterns of Productivity Growth. Department of Finance, Canada 1980.Google Scholar
  28. Stein, H.: Some Supply-Side Propositions. AEI Economist, 1980.Google Scholar
  29. Thurow, L.C.: The Productivity Problem. Paper presented to the Ontario Economic Council Conference on Supply-Side Economics. Toronto 1980.Google Scholar
  30. Tobin, J.: Stabilization Policy Ten Years After. Brookings Papers on Economic Activity 10, 1980.Google Scholar

Copyright information

© Physica-Verlag 1983

Authors and Affiliations

  • P. S. Rao
    • 1
  • B. K. Lodh
    • 1
  1. 1.Economic Council of OttawaOttawa

Personalised recommendations