Inflation targets

• November 13, 2000

  Seminar Summary: Price Stability and the Long-Run Target for Monetary Policy

  Bank of Canada Review - Autumn 2000 Allan Crawford

  On 8 and 9 June 2000, the Bank held a seminar to examine some key issues affecting the upcoming decision on Canada's inflation-control target for the period after 2001. The main issues covered at the seminar were the extent of downward nominal-wage rigidity and its implications for employment as well as the relative merits of price-level targeting versus inflation targeting. Another critical question that was discussed was how to balance the evidence on all the relevant issues in order to develop an overall view on the appropriate long-run target. The author gives a brief overview of the seminar followed by detailed summaries of individual papers.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation targets
• August 16, 2000

  The Changing Face of Central Banking in the 1990s

  Bank of Canada Review - Summer 2000 Graydon Paulin

  During the 1990s, central banks in the industrialized countries made important changes in the way they operate. As part of these initiatives, central banks have endeavoured to define a set of best practices, learning from each other in the process. The goal was to improve and adapt the frameworks within which monetary policy is implemented. Clarifying Objectives A clear objective is a necessary starting point for any policy framework. The growing consensus that price stability is the most appropriate objective for monetary policy was perhaps one of the most critical developments of the past decade. Price stability is now universally regarded as the key contribution that monetary policy can make to promote sustainable growth and maximize the level of employment. Central banks also need a clear strategy for achieving their objective. A major development of the past decade was the growing popularity of inflation targets as the numerical focus for monetary policy. Clearly defined inflation targets focus policy on the variable that is directly associated with price stability. The Bank of Canada was one of the first to adopt (in 1991) a set of targets for inflation over a specified time horizon. Accountability Many central banks have acquired greater independence and this, together with the public's desire for more information from key public institutions, has raised the standards for accountability. At the same time, explicit targets provide a clear measure against which to judge the performance of the monetary authorities. Increased accountability also has implications for the overall transparency of the monetary authorities. In sum, central banks have become much more open institutions and are placing greater emphasis on their communications activities. As an example, comprehensive inflation reports have become key communications vehicles for a number of central banks. Many of the changes implemented by central banks stem from the desire to improve the credibility of monetary policy, thus making it easier for monetary authorities to achieve their objectives. Although it is difficult to ascertain the overall effect of the evolving policy framework, it is encouraging that inflation and inflation expectations were at low levels at the end of the 1990s, thus providing a solid base for monetary policy in the future.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Credibility, Inflation targets, International topics, Monetary policy framework

• Identifying Policy-makers' Objectives: An Application to the Bank of Canada

  Staff Working Paper 2000-11 Nicholas Rowe, James Yetman

  In this paper, we develop a new way to test hypotheses about policy-makers' targets, and we implement that test for Canadian monetary policy.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets JEL Code(s): E, E5, E52, E6, E61

• Résultats empiriques multi-pays relatifs à l'impact des cibles d'inflation sur la crédibilité de la politique monétaire

  Staff Working Paper 1998-23 Pierre St-Amant, David Tessier

  Over the last few years, many countries have adopted inflation targets. The objective of this paper is to report some empirical results that bear on the link between the adoption of inflation targets and the behaviour of the main macroeconomic variables. After a discussion of some recent articles analyzing international experience, some simple statistical tests […]

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets

• A Non-Paradoxical Interpretation of the Gibson Paradox

  Staff Working Paper 1998-22 Serge Coulombe

  In this study, we show how, to yield the real cost of borrowing, the price level can be combined with the nominal interest rate in a monetary regime where the level of prices is trend stationary. We show that the price level then conveys intertemporal information in a way similar to nominal interest rates. We […]

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Inflation targets, Inflation: costs and benefits, Interest rates

• Un examen de la crédibilité de la politique monétaire au Canada

  Staff Working Paper 1998-12 Patrick Perrier

  In this study, the author uses survey data on inflationary expectations to obtain information about the credibility of Canada's monetary policy. By comparing the differences between the forecasts made by survey participants with the targets set by the Bank of Canada for the 1992-1996 period (the period covered by the study), it was possible to […]

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets JEL Code(s): E, E5, E52

• What Does Downward Nominal-Wage Rigidity Imply for Monetary Policy?

  Staff Working Paper 1997-13 Seamus Hogan

  A recent paper has suggested there might be a trade-off between inflation and unemployment at low inflation rates and this has led some economists to recommend that Canada increase its inflation rate.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets, Monetary policy framework, Monetary policy transmission JEL Code(s): C, C5, C52, E, E2, E24, E5, E50

• A Band-Aid Solution to Inflation Targeting

  Staff Working Paper 1997-11 Robert Amano, Richard Black, Marcel Kasumovich

  This paper reviews selectively the literature on exchange rate target zones and corresponding methodologies and examines whether they can be used to analyse the inflation-control problem.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation targets JEL Code(s): E, E3, E31, E5, E50

• La courbe de Phillips au Canada : un examen de quelques hypothèses

  Staff Working Paper 1997-3 Jean-François Fillion, André Léonard

  This study, which draws on a variety of research on price dynamics in Canada, examines some hypotheses that might explain the poor quality of recent inflation forecasts based on the conventional Phillips curve.

  Content Type(s): Staff research, Staff working papers Topic(s): Inflation and prices, Inflation targets JEL Code(s): C, C5, C52, E, E3, E31

• The Goal of Price Stability: A Review of the Issues

  Technical Report No. 54 Jack Selody

  The basic responsibility of a central bank is to preserve the value of money—that is, to maintain stability in the general level of prices. This report pulls together the main arguments for and against price stability as the appropriate goal for monetary policy. The available evidence suggests that the benefits of price stability are many […]

  Content Type(s): Staff research, Technical reports Topic(s): Inflation targets JEL Code(s): E, E3, E31, E5, E50