Nov. 9, 2011 – Sticking with the status quo was only one option under debate among monetary experts in the lead-up to renewal of the Bank of Canada’s inflation-targeting mandate, which was announced by Finance Minister Jim Flaherty this week. In “The Roads Not Taken: Why the Bank of Canada Stayed With Inflation Targeting,” Christopher Ragan assesses the decision, and the wrong turns and alternate routes it bypassed.
Several other routes were available, says Professor Ragan, the David Dodge Chair in Monetary Policy at the C.D. Howe Institute. Two of them – namely, targeting nominal GDP or targeting full employment – were arguably non-starters. Two other approaches, however, held more promise: (i) moving to a price-level targeting regime, or (ii) sticking with inflation targeting but with a lower, say 1 percent, target.
Nevertheless, concludes Professor Ragan, the renewal of the status quo keeps in place a coherent monetary policy regime that has served Canadians well.
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For more information contact:
Professor Christopher Ragan, Associate Professor of Economics, McGill University; and the David Dodge Chair in Monetary Policy at the C.D. Howe Institute.
Phone: 416-865-1904; email: cdhowe@cdhowe.org.