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The Interactive Evolution of Economic Ideas and Experience - The Case of Canadian Inflation Targeting

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Abstract

In Canada, targeting the inflation rate was intended as a temporary measure on a journey to price-level stability, but became a well-established monetary policy regime in its own right. This paper analyses the role of the interaction of economic ideas with the experience generated by their application to policy in bringing about this outcome. In the following account, changing beliefs about the stability or otherwise of ongoing inflation, the capacity of a flexible exchange rate to create a vicious circle of depreciation and rising domestic prices, and about the roles played by the natural unemployment rate and money growth in influencing economic outcomes are emphasised. Today’s standard DSGE approach to modelling inflation targeting arrived on the scene only after the Canadian regime was well established.

Suggested Citation

  • David Laidler, 2015. "The Interactive Evolution of Economic Ideas and Experience - The Case of Canadian Inflation Targeting," University of Western Ontario, Economic Policy Research Institute Working Papers 20151, University of Western Ontario, Economic Policy Research Institute.
    • Handle: RePEc:uwo:epuwoc:20151
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    File URL: https://ir.lib.uwo.ca/cgi/viewcontent.cgi?article=1074&context=economicsepri_wp
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    Cited by:

    1. Michael D. Bordo & Pierre L. Siklos, 2017. "Central Banks: Evolution and Innovation in Historical Perspective," NBER Working Papers 23847, National Bureau of Economic Research, Inc.
    2. Andersson, Fredrik N. G. & Jonung, Lars, 2018. "Lessons for Iceland from the Monetary Policy of Sweden," Working Papers 2018:16, Lund University, Department of Economics.
    3. Scobie, Grant M, 2020. "If Bill Phillips were Governor ...? Some implications of his work for contemporary macroeconomic policy," Working Paper Series 21096, Victoria University of Wellington, Chair in Public Finance.

    More about this item

    Keywords

    Money; Monetary Policy; Inflation; Inflation-targeting; Interest Rates; Unemployment; Exchange Rate;
    All these keywords.

    JEL classification:

    • B2 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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