Weighing the Options: Why the Bank of Canada Should Renew Inflation Targeting

Central Bank’s Inflation Targeting Doesn’t Need Overhaul

• In this report, leading monetary economist Stephen Williamson evaluates the alternatives to the Bank’s current inflation-targeting agreement, and finds that none of the other options are likely to improve upon the current agreement that has served Canada well since 1991. 
• Williamson concludes the Bank of Canada should not overhaul its 2 percent inflation-targeting regime when it comes up for renewal later this year.
• He argues inflation targeting has been an effective tool for Canada. The Bank of Canada has been successful in keeping inflation close to its 2 percent target since its adoption, with inflation falling within the 1 percent to 3 percent bounds, for the most part. And success in hitting the inflation target has been consistent with good macroeconomic performance.