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