Performance of Inflation Targeting across Canadian Provinces

This paper examines how inflation-targeting framework performs across the Canadian provinces. The framework implies optimal moment conditions such that forecasts of inflation, conditional on information available today, are kept on target. We analyze whether these conditions hold when we use provincial inflation and various information variables deemed to be useful for forecasting. We find that there are predictable deviations from the target for the periphery provinces (British Columbia, Alberta, Saskatchewan and Atlantic Canada). These results summarize regional discrepancies in Canada when it comes to the conduct of monetary policy. We estimate regional wage Phillips curves to assess asymmetries in rigidities across Canada. We find that Nova Scotia and British Columbia are much more rigid regions than the rest of Canada. Such results are useful for the design of optimal monetary policy in Canada. ∗Tel.: +1 306 966 6468; fax: +1 306 966 5232. E-mail address: [email protected] †Tel.: +1 250 721 8545; fax: +1 250 721 6214. E-mail address: [email protected]