Domestic and foreign influences on Canadian prices

The paper examines the pricing behaviour of 81 Canadian manufacturing industries from 1974 to 1996. It explores the circumstances in which Canadian prices respond to foreign (U.S.) influences, as opposed to domestic factors (i.e., labour, energy costs, and productivity growth). It finds that both forces exert important influences on Canadian prices. The responses differ across industries. Prices of domestically produced goods are more sensitive to their U.S. counterparts if the industry faces higher competitive pressure, either within the domestic market or from import competition, and if products are less differentiated.