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Where does this data come from? Did you make the graphs, or can they be found somewhere? As a student I am always curious where economists gather their data. If you did make the graphs, what program did you use? Thanks for the interesting post! Really liked Nick's post on EMH a few days back.

If the bank does raise rates, what do you think would be the initial jump? At most?

I got the data are from CANSIM, although you can get them from the Bank of Canada's website:

Core CPI: v41690926
Commodity price index: v36387
Daily exchange rate (I took the weekly average): V121716

The graphs were made with Matlab.

They should hold steady. I would much rather see a bit of extra inflation than sacrificed output. Also, I wouldn't over react to what commodity prices are doing at the moment - they could decline this year.

indefease: my guess is that the Bank of Canada will raise the overnight rate by 25 basis points at first. It doesn't like to move more than 25bps at a time, unless it really needs to, and I don't think it will need to. I think an appreciating exchange rate will do most of the work in keeping inflation under control. Just a guess.

I agree with Nick.

I cannot imagine the Bank of Canada raising overnight rates until after the US federal reserve has started to raise rates.

In my opinion, the US fed should start nudging up rates this mid-summer at the latest. Use the moment to declare victory over the financial crisis.

dear professor:

I agree with your assessment. If output gap is expected to close in 3Q 2011 per BoC, the bank rate should reach the neutral level by then assuming inflation within tolerance. Market is pricing only ~65 bps hikes in 2010; that leaves a hefty ~350 bps move in first 3 quarters. This tells me hiking will be more front-loaded in nature than market pricing suggests currently.

Long time reader, my first post. Thank you for this very educational blog.

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