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How to Improve Inflation Targeting in Canada
Author:
Mr. Maurice Obstfeld
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Kevin Clinton null

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Mr. Ondrej Kamenik
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Mr. Douglas Laxton
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Ms. Yulia Ustyugova
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Hou Wang
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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 192
Language:
English
Publication Date:
26 Sep 2016
DOI:
https://doi.org/10.5089/9781475541298.001
ISBN:
9781475541298
ISSN:
1018-5941
Pages:
43
Keywords:
WP; inflation target; exchange rate; output-inflation trade-off; rate of inflation; policy rate; Canada; inflation targeting; monetary policy; fiscal policy; interest rate path; inflation expectation; Inflation; Central bank policy rate; Real interest rates; Output gap; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund