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In many mainstream macroeconomic models, sticky prices play an important role in explaining the effects of monetary policy on the economy.

The authors study the macroeconomic effects of non-zero trend inflation in a simple dynamic stochastic general-equilibrium model with sticky prices.

The authors examine whether simple measures of Canadian equity and housing price misalignments contain leading information about output growth and inflation.

Beginning with a review of the adoption of inflation targeting in a broad group of countries, Paulin focuses on changes in the design of inflation-targeting frameworks in light of fifteen years of accumulated experience. Included in the discussion are the use of numerical targets and ranges, the policy horizon, supporting institutional policy structures, and communication, including the publication of forecasts. A recurring theme is how much flexibility an inflation-targeting regime allows. The article concludes that the changes made to the frameworks have been relatively modest since their adoption, but in concert with the improved credibility that has resulted from central banks meeting their inflation-control targets, they have allowed an increasingly nuanced response to economic shocks.

Since the Bank of Canada adopted inflation targeting in 1991, it has focused on a measure of core inflation as a shorter-term guide for monetary policy. When the targets were renewed in 2001, the Bank adopted CPIX as its measure of core inflation because of the advantages it offered. Leflèche and Armour review the experience with CPIX and whether the criteria used to select it in 2001 still favour the measure today. They describe the various measures of core inflation monitored by the Bank and evaluate them on the basis of the volatility of the components, the volatility of the core measures themselves, absence of bias relative to total CPI, predictive power, and certain practical criteria, including timeliness and credibility. They conclude that CPIX still satisfies all the empirical and practical criteria.

The conduct of monetary policy within an inflation-targeting framework requires the establishment of an inflation-target horizon, which is the average time it takes inflation to return to the target. Policy-makers have an interest in communicating this horizon, since it is likely to help anchor inflation expectations. This article focuses on the determination of the appropriate policy horizon by reporting on two recent Bank of Canada studies. The evidence suggests that the current target horizon of six to eight quarters remains appropriate. It is important to note that the duration of the optimal inflation-target horizon varies widely, depending on the combination of shocks to the economy. In rare cases when the financial accelerator is triggered by a persistent shock, such as an asset-price bubble, it may be appropriate to take a longer view of the inflation-target horizon.

The Bank of Canada's 2005 conference focused on two critical issues: price-level targets versus inflation targets, and the appropriate level of inflation. Session topics included new methodological approaches to examining the validity of the New Keynesian Phillips curve for Canada; the monetary policy implications of border effects and the financial-accelerator model; the zero lower bound on nominal interest rates; and inflation and welfare in general-equilibrium macroeconomic models. A panel of invited speakers discussed the issues of each session, and two distinguished speakers gave their perspectives on inflation.

The authors analyze the welfare implications of simple monetary policy rules in the context of an estimated model of a small open economy for Canada with traded and non-traded goods, and with sticky prices and wages.

The author provides a statistical evaluation of various measures of core inflation for Canada.

Bordo and Redish examine the evolution of central banking over the past 70 years and identify periods where Canada was either a notable innovator with regard to central banking practices or appeared to be following a slightly different course. They note that global forces seemed to play an important role in determining inflation outcomes throughout the 70-year period, and that Canada and the United States experienced roughly similar inflation rates despite some important differences in their monetary policy regimes. Canada, for example, was comparatively late in establishing a central bank, launching the Bank of Canada long after most other industrial countries had one. Canada also operated under a flexible exchange rate through much of the Bretton Woods period, unlike any other country in the 1950s and early 1960s; adopted inflation targets well before most other central banks; and introduced a number of other innovative changes with regard to the implementation of monetary policy in the 1990s.