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Flexible Inflation Forecast Targeting: Evidence from Canada

We examine models of flexible inflation forecast targeting. The target criteria from these models restrict the conditionally expected paths of inflation and output targeted by the central bank. We estimate and test these criteria for Canada, an early adopter of inflation targeting. We show that the Bank of Canada systematically balances inflation and economic activity over the medium term policy horizon consistent with flexible inflation targeting. Further, our results establish the usefulness of flexible inflation targeting rules as an alternative to standard Taylor rules.

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Paper provided by Department of Economics, University of Victoria in its series Department Discussion Papers with number 1101.

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Length: 39 pages
Date of creation: 30 Nov 2011
Date of revision:
Handle: RePEc:vic:vicddp:1101
Note: ISSN 1914-2838
Contact details of provider: Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2
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  5. Glenn Otto & Graham Voss, 2009. "Strict and Flexible Inflation Forecast Targets: An Empirical Investigation," Department Discussion Papers 0902, Department of Economics, University of Victoria.
  6. Svensson, Lars E. O., 1998. "Inflation targeting as a monetary policy rule," CFS Working Paper Series 1998/16, Center for Financial Studies (CFS).
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  9. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers 99-13, C.V. Starr Center for Applied Economics, New York University.
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  12. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
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  17. Consolo, Agostino & Favero, Carlo A., 2009. "Monetary Policy Inertia: More a Fiction than a fact?," CEPR Discussion Papers 7341, C.E.P.R. Discussion Papers.
  18. S. G. B Henry & A. R. Pagan, 2004. "The Econometrics of the New Keynesian Policy Model: Introduction," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(s1), pages 581-607, 09.
  19. Graham Elliott & Thomas J. Rothenberg & James H. Stock, 1992. "Efficient Tests for an Autoregressive Unit Root," NBER Technical Working Papers 0130, National Bureau of Economic Research, Inc.
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