## How to Improve Inflation Targeting in Canada

_IMF Working Papers, September 26, 2016_

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## Bibliographic details
- Authors: Maurice Obstfeld, Kevin Clinton, Ondrej Kamenik, Douglas Laxton, Yulia Ustyugova, Hou Wang
- Published: September 26, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475541298.001

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### Key findings
- Routine publication of the forecast path for the policy interest rate (i.e. “conventional forward guidance”) would improve the transparency of monetary policy.
- Conventional forward guidance would 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.

### Policy recommendations and implications
- Adopt routine publication of the forecast path for the policy interest rate (conventional forward guidance) to enhance transparency and shape inflation expectations.
- Coordinate conventional forward guidance with fiscal stimulus measures to more effectively restore output to potential when the policy rate is at or near the effective lower bound.
- Favor a combined forward guidance plus fiscal stimulus strategy over raising the inflation target in response to persistent declines in the world equilibrium real interest rate and ELB constraints.

### Context, scope, and technical metadata
- Authors: Maurice Obstfeld, Kevin Clinton, Ondrej Kamenik, Douglas Laxton, Yulia Ustyugova, Hou Wang
- Date: September 26, 2016
- Series: IMF Working Papers; Working Paper No. 2016/192
- Issue: 192
- Volume: 2016
- Pages: 43
- DOI: https://doi.org/10.5089/9781475541298.001
- Stock No: WPIEA2016192
- ISBN: 9781475541298
- ISSN: 1018-5941

### Subjects and keywords
- 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

*Summary based on the IMF Working Paper "How to Improve Inflation Targeting in Canada" (IMF Working Papers 2016, 192).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/how-to-improve-inflation-targeting-in-canada-44296_