ECO 1302 Lecture Notes - Lecture 59: Inflation Targeting, Business Cycle

• School: University of Ottawa
• Department: Economics
• Course: ECO 1302
• Professor: Mario Seccareccia

Document Summary

In recent years, a number of economists and policy makers have sought a middle ground between saddling monetary policy makers with rigid rules and giving them complete discretion. Inflation targeting is considered by many to be a reasonable compromise between rules and discretion. The minister of finance and the governor of the bank of canada, decide on a numerical target for the inflation rate currently 2 percent based on the cpi. The bank of canada must then do its best to reach the target. Monetary policy makers are given complete discretion as to how they go about trying to achieve this goal. A very obvious benefit of inflation targeting is that cpi inflation has averaged only 2 percent since 1991 precisely the midpoint value of the target inflation band. Inflation has remained within the band more than 80 percent of the time. Thus, as argued by bank of canada officials, the inflation-targeting framework has delivered lower and more stable inflation.