How to Improve Inflation Targeting in Canada

By Maurice Obstfeld, Kevin Clinton, Ondrej Kamenik, Douglas Laxton, Yulia Ustyugova, Hou Wang

September 26, 2016

Preview Citation

Format: Chicago

Maurice Obstfeld, Kevin Clinton, Ondrej Kamenik, Douglas Laxton, Yulia Ustyugova, and Hou Wang. How to Improve Inflation Targeting in Canada, (USA: International Monetary Fund, 2016) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Routine publication of the forecast path for the policy interest rate (i.e. “conventional forward guidance”) would improve the transparency of monetary policy. It would also improve policy effectiveness through its influence on expectations, particularly when there is a risk of low inflation, and the policy rate is constrained by the effective lower bound. Model simulations indicate that a potent macroeconomic strategy, for returning the Canadian economy to potential, combines conventional forward guidance with a fiscal stimulus. As a response to the effective lower bound constraint, and the decline in the world equilibrium real interest rate, this strategy is preferable to raising the inflation target.

Subject: Banking, Central bank policy rate, Financial services, Inflation, Inflation targeting, Monetary policy, Output gap, Prices, Production, Real interest rates

Keywords: Canada, Central bank policy rate, Exchange rate, Fiscal policy, Global, Inflation, Inflation expectation, Inflation target, Inflation targeting, Interest rate path, Monetary policy, Output gap, Output-inflation trade-off, Policy rate, Rate of inflation, Real interest rates, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/192
Stock No:

WPIEA2016192
ISBN:

9781475541298
ISSN:

1018-5941

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