@article{Productivity-Inflation:4248,
      recid = {4248},
      author = {Jarrett, J. Peter and Selody, Jack},
      title = {The Productivity-Inflation Nexus in Canada 1963-1979},
      publisher = {Bank of Canada},
      address = {1981},
      pages = {1 online resource (v, 69 pages)},
      abstract = {During recent years the Canadian economy has been  simultaneously subjected to increasing rates of inflation  and declining growth in labour productivity. Virtually all  analysis of the macroeconomic relationship between the two  phenomena has been based on the premise that there is a  unidirectional flow of causation from productivity growth  (assumed to be exogenous) to inflation. In this paper we  have attempted to identify the macroeconomic relationship  between labour productivity growth and inflation.  Specifically, we utilized both a reduced-form, bivariate  Granger technique and structural models to test the  hypothesis that the result of increased productivity growth  is a one-for-one reduction in inflation against the  alternative hypothesis that, because of a feedback  relationship, inflation may itself have had a negative  effect on productivity growth in Canada over the 1963-79  period. In the bivariate case we observed the existence of  bidirectional causality and this allowed us to reject the  hypothesis that the payoff to increased productivity growth  is a unit-proportional reduction in inflation. Rather, the  implied multiplier is 2.24. A variety of structural models  also displayed a feedback relationship. Anticipated  inflation was shown to figure more importantly than  unanticipated inflation in its negative effect on  productivity growth, but our measures of uncertainty about  inflation appeared to have had no incremental influence.  Depending on how one proxies inflation expectations in the  model, a 'permanent' one percentage point increase in  inflation leads to a reduction in productivity growth of  .08 to .34 percentage points. This is sufficient to explain  a substantial portion of the recent slowdown in  productivity growth. The long-run inflation multiplier  associated with an increase in productivity growth lies in  the range of -.75 to -1.33.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/4248},
      doi = {https://doi.org/10.34989/tr-23},
}