Better Late Than Never: Towards a Systematic Review of Canada's Monetary Policy Regime

Abstract

In this issue... The Bank of Canada has announced that its inflation-targeting regime, in place since 1991, is at last to get a thorough review. The issues needing examination include whether to move to a “price stability ” program, which might be both feasible and desirable. The Study in Brief When Canada adopted a 2 per cent inflation target in 1991, it did so in anticipation that, after further study, there would be a move to “price stability ” beyond 1995. While inflation targeting has created a lowinflation environment, with good effects for Canada’s economy, price stability has slipped from the agenda. The objective was postponed in 1993, and it subsequently disappeared altogether. The Bank of Canada, however, in 2006 made a new promise to study all aspects of inflation targeting, as a prelude to possible reform of the current program at renewal time in 2011. Research must cover technical matters, but it should also re-open the price stability question. Switching to this goal would require careful preparation, so it needs early study. Price stability would have two key features. Instead of the current 2 percent, 1 percent CPI inflation

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