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The persistence of both core and total consumer price index inflation in Canada has declined significantly since the 1980s. In addition to providing up-to-date estimates of inflation persistence, this article examines possible reasons for the decline suggested in the literature. The role played by monetary policy, through its effect on price- and wage-setting behaviour, is distinguished from possible changes to the structure of the economy that are independent of monetary policy. The authors also discuss the implications for monetary policy of low structural persistence in inflation, including the choice of an inflation-targeting regime versus a price-level-targeting regime.

As the Government of Canada’s fiscal agent, the Bank of Canada provides strategic policy advice on the management of the government’s debt, in addition to being responsible for conducting debt-management operations. In this article, the authors review the evolution of the debt strategy over the past 20 years and outline the complex process of developing a sound strategy that balances various cost and risk considerations. This includes an examination of the tools and practices used to develop the new medium-term debt-management strategy, such as the modelling approach involved, market consultations and various debt-management metrics.

This discussion paper represents the work of the inter-agency Canadian OTC Derivatives Working Group (OTCD WG), formed in December 2009, that is chaired by the Bank of Canada and composed of members from the Office of the Superintendent of Financial Institutions (OSFI), the federal Department of Finance, the Ontario Securities Commission, the Autorité des marchés financiers, the Alberta Securities Commission and the Bank of Canada.

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.

We use controlled laboratory experiments to test the causal effects of central bank communication on economic expectations and to distinguish the underlying mechanisms of those effects. In an experiment where subjects learn to forecast economic variables, we find that central bank communication has a stabilizing effect on individual and aggregate outcomes and that the size of the effect varies with the type of communication.

We develop high-frequency, news-based indicators using natural language processing methods to analyze news media texts. Our indicators track both supply (raw, intermediate and final goods) and labour shortages over time. They also provide weekly time-varying topic narratives about various types of shortages.

This issue features a summary of the Bank’s annual conference, which took place in November 2011 and dealt with payments systems, and two articles that present research by Bank staff on global current account imbalances and macrofinancial risk assessment. The fourth article in this issue reviews the recent experience with inflation targeting.

This paper examines the contribution of several supply factors to US headline inflation since the start of the COVID-19 pandemic. We identify six supply shocks using a structural VAR model: labor supply, labor productivity, global supply chain, oil price, price mark-up and wage mark-up shocks.

Feedback rules are rules aimed at guiding policy-makers as they face the problem of keeping inflation close to a desired path without causing variability elsewhere in the economy. These rules link short-term interest rates, controlled by the central bank, to the rate of inflation and/or its deviation from a target rate. The authors describe the most popular types of feedback rules and review some simulation results.

There are indications that business dynamism has declined in advanced economies. In particular, firm entry and exit rates have fallen, suggesting that the creative destruction process has lost some of its vitality. Meanwhile, productivity growth has slowed. Some believe that lower entry and exit rates partly explain the weaker productivity growth.