The Link between Inflation and Output Variability in Canada : A Note

One of the costs of high levels of inflation may be misperceptions of relative prices and excessive volatility in sectoral output. This paper, therefore, examines the relationship between the level of inflation and sectoral output growth variability in Canada from 1961:1 to 1995:4. Despite the substantial variation in inflation over this period, we find little evidence of an impact of the level of inflation on variability of sectoral output growth. Our results indicate that the oil price and the real exchange rate are significantly correlated with the variability of output growth across sectors