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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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  • 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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  • David R. Johnson, 1997. "Expected Inflation in Canada 1988-1995: An Evaluation of Bank of Canada Credibility and the Effect of Inflation Targets," Canadian Public Policy, University of Toronto Press, vol. 23(3), pages 233-258, September.
  • Handle: RePEc:cpp:issued:v:23:y:1997:i:3:p:233-258
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    References listed on IDEAS

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    Cited by:

    1. Jung, Alexander & El-Shagi, Makram & Giesen, Sebastian, 2014. "Does the federal reserve staff still beat private forecasters?," Working Paper Series 1635, European Central Bank.
    2. El-Shagi, Makram, 2011. "Inflation expectations: Does the market beat econometric forecasts?," The North American Journal of Economics and Finance, Elsevier, vol. 22(3), pages 298-319.
    3. El-Shagi, Makram, 2009. "Inflation Expectations: Does the Market Beat Professional Forecasts?," IWH Discussion Papers 16/2009, Halle Institute for Economic Research (IWH).
    4. David Longworth & Brian O´Reilly, 2002. "The Monetary Policy Transmission Mechanism and Policy Rules in Canada," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 13, pages 357-392 Central Bank of Chile.
    5. Miles, William, 2008. "Inflation targeting and monetary policy in Canada: What is the impact on inflation uncertainty?," The North American Journal of Economics and Finance, Elsevier, vol. 19(2), pages 235-248, August.

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