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Financial Stability: The Next Frontier for Canadian Monetary Policy

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  • Christopher Ragan

    (McGill University)

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    Abstract

    The monetary policy arrangement in Canada has proven very successful. Despite many and varied economic shocks, the Bank of Canada has established the necessary conditions under which the annual rate of inflation, as measured by the rate of change of the Consumer Price Index, has remained very close to its formal 2 percent target for more than 15 years. The recent financial crisis, however, has highlighted the fact that low inflation may not be enough to ensure the stability of the financial system and the economy in general. The goal of achieving and maintaining financial stability has become, in Canada and elsewhere, the next frontier of monetary policy. What is needed is a new Canadian institutional framework to oversee macro-prudential regulation, which would take a systemic approach to safeguarding the financial system as a whole, and clearly define the role of the Bank of Canada within it. It will require the federal government, first, to recognize the importance of the issue and, second, to take the necessary time to assemble the framework with the appropriate parties involved and to assign responsibilities clearly. Doing it right will involve bringing together various policy authorities with different perspectives, specialties, and primary mandates.

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    Bibliographic Info

    Article provided by C.D. Howe Institute in its journal C.D. Howe Institute Commentary.

    Volume (Year): (2012)
    Issue (Month): 338 (January)
    Pages:

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    Handle: RePEc:cdh:commen:338

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    Keywords: Monetary Policy; Bank of Canada; inflation targeting; Consumer Price Index (CPI);

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Colin Busby & David Gray, 2011. "Mending Canada's Employment Insurance Quilt: The Case for Restoring Equity," C.D. Howe Institute Backgrounder, C.D. Howe Institute, issue 144, November.
    2. Carmen M. Reinhart & Vincent R. Reinhart, 2010. "After the fall," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 17-60.
    3. Alexandre Laurin & William B.P. Robson, 2011. "Ottawa's Pension Gap: The Growing and Under-reported Cost of Federal Employee Pensions," e-briefs 127, C.D. Howe Institute.
    4. Laidler, David, 1999. "The Exchange Rate Regime and Canada's Monetary Order," Working Papers 99-7, Bank of Canada.
    5. Ragan, Christopher, 1998. "On the Believable Benefits of Low Inflation," Working Papers 98-15, Bank of Canada.
    6. David Longworth, 2002. "Inflation and the Macroeconomy: Changes from the 1980s to the 1990s," Bank of Canada Review, Bank of Canada, vol. 2002(Spring), pages 3-18.
    7. Benjamin Dachis & William B.P. Robson, 2011. "Holding Canada's Cities to Account: an Assessment of Municipal Fiscal Management," C.D. Howe Institute Backgrounder, C.D. Howe Institute, issue 145, November.
    8. Philippe Bergevin & David Laidler, 2010. "Putting Money Back into Monetary Policy: A Monetary Anchor for Price and Financial Stability," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 312, October.
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