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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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  • Robert Amano & Tom Carter & Don Coletti, 2009. "Next Steps for Canadian Monetary Policy," Bank of Canada Review, Bank of Canada, vol. 2009(Spring), pages 7-20.
  • Handle: RePEc:bca:bcarev:v:2009:y:2009:i:spring09:p:7-20
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    Cited by:

    1. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302 Elsevier.
    2. Marc Lavoie & Mario Seccareccia, 2012. "Monetary Policy in a Period of Financial Chaos: The Political Economy of the Bank of Canada in Extraordinary Times," Chapters,in: Monetary Policy and Central Banking, chapter 9 Edward Elgar Publishing.
    3. 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.
    4. George A. Kahn, 2009. "Beyond inflation targeting: should central banks target the price level?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 35-64.
    5. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302 Elsevier.

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