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How to Improve Inflation Targeting in Canada

Author

Listed:
  • Mr. Maurice Obstfeld
  • Kevin Clinton
  • Mr. Ondrej Kamenik
  • Mr. Douglas Laxton
  • Ms. Yulia Ustyugova
  • Hou Wang

Abstract

Routine publication of the forecast path for the policy interest rate (i.e. “conventional forward guidance”) would improve the transparency of monetary policy. It would also improve policy effectiveness through its influence on expectations, particularly when there is a risk of low inflation, and the policy rate is constrained by the effective lower bound. Model simulations indicate that a potent macroeconomic strategy, for returning the Canadian economy to potential, combines conventional forward guidance with a fiscal stimulus. As a response to the effective lower bound constraint, and the decline in the world equilibrium real interest rate, this strategy is preferable to raising the inflation target.

Suggested Citation

  • Mr. Maurice Obstfeld & Kevin Clinton & Mr. Ondrej Kamenik & Mr. Douglas Laxton & Ms. Yulia Ustyugova & Hou Wang, 2016. "How to Improve Inflation Targeting in Canada," IMF Working Papers 2016/192, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/192
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Monica Jain & Christopher S. Sutherland, 2020. "How Do Central Bank Projections and Forward Guidance Influence Private-Sector Forecasts?," International Journal of Central Banking, International Journal of Central Banking, vol. 16(5), pages 179-218, October.
    2. Andres Gonzalez & Alexander Guarin & Diego A. Rodriguez-Guzman & Hernando Vargas-Herrera, 2020. "4GM: A New Model for the Monetary Policy Analysis in Colombia," Borradores de Economia 1106, Banco de la Republica de Colombia.
    3. Kevin Clinton & Mr. R. S Craig & Mr. Douglas Laxton & Hou Wang, 2019. "Strengthening the Monetary Policy Framework in Korea," IMF Working Papers 2019/103, International Monetary Fund.
    4. Brubakk, Leif & ter Ellen, Saskia & Robstad, Ørjan & Xu, Hong, 2022. "The macroeconomic effects of forward communication," Journal of International Money and Finance, Elsevier, vol. 120(C).
    5. Rania A. Al-Mashat & Mr. Ales Bulir & N. Nergiz Dinçer & Tibor Hlédik & Mr. Tomás Holub & Asya Kostanyan & Mr. Douglas Laxton & Armen Nurbekyan & Mr. Rafael A Portillo & Hou Wang, 2018. "An Index for Transparency for Inflation-Targeting Central Banks: Application to the Czech National Bank," IMF Working Papers 2018/210, International Monetary Fund.
    6. Foglia, Matteo & Palomba, Giulio & Tedeschi, Marco, 2023. "Disentangling the geopolitical risk and its effects on commodities. Evidence from a panel of G8 countries," Resources Policy, Elsevier, vol. 85(PB).
    7. Mr. Gee Hee Hong & Rahul Anand & Yaroslav Hul, 2019. "Achieving the Bank of Japan’s Inflation Target," IMF Working Papers 2019/229, International Monetary Fund.
    8. Mokhtar Benlamine & Mr. Ales Bulir & Meryem Farouki & Ágnes Horváth & Faical Hossaini & Hasnae El Idrissi & Zineb Iraoui & Mihály Kovács & Mr. Douglas Laxton & Anass Maaroufi & Katalin Szilágyi & Moha, 2018. "Morocco: A Practical Approach to Monetary Policy Analysis in a Country with Capital Controls," IMF Working Papers 2018/027, International Monetary Fund.
    9. Vitor Gaspar & Maurice Obstfeld & Ratna Sahay & Douglas Laxton & Dennis P Botman & Kevin Clinton & Romain A Duval & Kotaro Ishi & Zoltan Jakab & Laura Jaramillo & Constant A Lonkeng Ngouana & Tommaso , 2016. "Macroeconomic Management When Policy Space is Constrained; A Comprehensive, Consistent and Coordinated Approach to Economic Policy," IMF Staff Discussion Notes 16/09, International Monetary Fund.

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