Bank of Canada Review - Spring 2009

April 9, 2009
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Spring 2009
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Examination of progress in the Bank’s exploration of two alternatives to the current inflation-targeting framework: (i) lowering the inflation target and (ii) shifting to a price-level target; a review of arguments for and against price-level targeting, focusing on its costs and benefits compared with inflation targeting; assessing the merits of price-level targeting vis-à-vis inflation targeting from a debt-revaluation perspective; quantifying redistribution of wealth in Canada in the face of unexpected inflation.
Content Type(s): Publications, Bank of Canada Review
April 9, 2009

Next Steps for Canadian Monetary Policy

Bank of Canada Review - Spring 2009 Robert Amano, Thomas J. Carter, Donald Coletti
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.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Central bank research, Economic models, Inflation and prices, Inflation targets, Inflation: costs and benefits, Monetary policy framework
April 8, 2009

Price-Level Targeting and Stabilization Policy: A Review

Bank of Canada Review - Spring 2009 Steve Ambler
This article reviews arguments in the literature for and against price-level targeting, focusing on its costs and benefits compared with inflation targeting. Benefits of price-level targeting include the effect on forward-looking inflation expectations; the ability to substitute for commitment by a central bank to its future policies; lessening forecast errors; better economic performance in response to real shocks because of lower wage indexation; and a reduction in the problem of the zero lower bound on nominal interest rates.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation and prices, Inflation: costs and benefits, Monetary policy framework
April 7, 2009

Price-Level Uncertainty, Price-Level Targeting, and Nominal Debt Contracts

Bank of Canada Review - Spring 2009 Allan Crawford, Césaire Meh, Yaz Terajima
Many central banks around the world have embraced inflation targeting as a monetary policy framework. Interest is growing, however, in price-level targeting as an alternative. The choice of frameworks has important consequences for financial contracts, most of which are not fully indexed to the price level. Changes in the price level therefore lead to changes in the real value of contracts.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation targets, Inflation: costs and benefits, Monetary policy framework
April 5, 2009

Unexpected Inflation and Redistribution of Wealth in Canada

Bank of Canada Review - Spring 2009 Césaire Meh, Yaz Terajima
One of the most important arguments in favour of price stability is that unexpected inflation generates changes in the distribution of income and wealth among different economic agents. These redistributions occur because many loans are specified in fixed dollar terms and unexpected inflation redistributes wealth from creditors to debtors by reducing the real value of nominal assets and liabilities.
Content Type(s): Publications, Bank of Canada Review articles Topic(s): Central bank research, Inflation and prices, Inflation: costs and benefits, Sectoral balance sheet