For example, our main projection model for the Canadian economy, ToTEM, has a structure that is based on explicit assumptions about firms' profit objectives and the constraints that they face when setting prices.
As a result, the output gap is not a direct determinant of inflation in ToTEM, in the sense that when firms set  2  BIS Review 103/2009  prices, they do not explicitly take account of the aggregate output gap. More generally, we pay attention to a variety of indicators of inflationary pressures, such as core inflation, yield curves, and credit indicators.