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Next Steps for Canadian Monetary Policy

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Abstract

In 2006, the Bank initiated a research program exploring two alternatives to the current inflation-targeting framework: (i) lowering the inflation target and (ii) shifting to a price-level target. This article discusses progress to date, places the Bank's findings in the context of a broader literature, and identifies avenues for future research. Earlier literature and recent studies at the Bank suggest that an inflation target below two per cent is likely preferable to the status quo, though it is unclear how much lower policy-makers should aim and also how much Canadians would benefit from a shift. With regard to the price-level target, evidence is more mixed, with need for study concerning (i) the target's influence on contracting behaviour and inflation expectations; (ii) strategies for ensuring credibility in the commitment to price-level targeting; and (iii) the Canadian economy's vulnerability to shocks that the literature identifies as particularly detrimental to the target's performance.

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Bibliographic Info

Article provided by Bank of Canada in its journal Bank of Canada Review.

Volume (Year): 2009 (2009)
Issue (Month): Spring ()
Pages: 7-20

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Handle: RePEc:bca:bcarev:v:2009:y:2009:i:spring09:p:7-20

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Cited by:
  1. Lars E.O. Svensson, 2010. "Inflation Targeting," NBER Working Papers 16654, National Bureau of Economic Research, Inc.
  2. Christopher Ragan, 2011. "Precision Targeting: The Economics – and Politics – of Improving Canada’s Inflation-Targeting Framework," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 321, February.

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