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Expected Inflation in Canada 1988-1995: An Evaluation of Bank of Canada Credibility and the Effect of Inflation Targets

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Author Info
David R. Johnson
Abstract

Between 1988 and 1995 actual inflation in Canada fell while expected inflation did not fall as rapidly. The Bank of Canada made three attempts to signal its policy of lower inflation: a series of speeches from January to June of 1988, the announcement of inflation targets in February 1991, and the reaffirmation of inflation targets in December 1993. This paper finds that only the 1988 speeches reduced expected inflation. There is considerable evidence that inflation targets were credible and that the 1993 change in Governor was handled so that expected inflation both remained within the target range and continued to fall.

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File URL: http://economics.ca/cgi/jab?journal=cpp&view=v23n3/CPPv23n3p233.pdf
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Publisher Info
Article provided by University of Toronto Press in its journal Canadian Public Policy.

Volume (Year): 23 (1997)
Issue (Month): 3 (September)
Pages: 233-258
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Handle: RePEc:cpp:issued:v:23:y:1997:i:3:p:233-258

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  2. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May. [Downloadable!] (restricted)
  3. Persson, Torsten, 1988. "An introduction and a broad survey," European Economic Review, Elsevier, vol. 32(2-3), pages 519-532, March. [Downloadable!] (restricted)
  4. Gramlich, Edward M, 1983. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 155-73, May. [Downloadable!] (restricted)
  5. Christopher Ragan, 1995. "Deriving Agents' Inflation Forecasts from the Term Structure of Interest Rates," Macroeconomics 9502003, EconWPA. [Downloadable!]
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  6. Kevin Clinton, 1995. "The term structure of interest rates as a leading indicator of economic activity: A technical note," Bank of Canada Review, Bank of Canada, vol. 1995(Winter), pages 23-40. [Downloadable!]
  7. Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March. [Downloadable!] (restricted)
  8. Laurence Ball & Dean Croushore, 1995. "Expectations and the Effects of Monetary Policy," NBER Working Papers 5344, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April. [Downloadable!] (restricted)
  10. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
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  12. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February. [Downloadable!] (restricted)
  13. Smyth, David J., 1992. "Measurement errors in survey forecasts of expected inflation and the rationality of inflation expectations," Journal of Macroeconomics, Elsevier, vol. 14(3), pages 439-448. [Downloadable!] (restricted)
  14. Batchelor, Roy & Orr, Adrian, 1991. "Inflation uncertainty, inflationary shocks and the credibility of counterinflation policy," European Economic Review, Elsevier, vol. 35(7), pages 1385-1397, October. [Downloadable!] (restricted)
  15. Bryan, Michael F & Gavin, William T, 1986. "Models of Inflation Expectations Formation: A Comparison of Household and Economist Forecasts: A Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 539-44, November. [Downloadable!] (restricted)
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