Could a higher inflation target enhance macroeconomic stability? / by José Dorich ... [et al.].: FB3-5/2018-17E-PDF
“Recent international experience with the effective lower bound on nominal interest rates has rekindled interest in the benefits of inflation targets above 2 per cent. We evaluate whether an increase in the inflation target to 3 or 4 per cent could improve macroeconomic stability in the Canadian economy. We find that the magnitude of the benefits hinges critically on two elements: (i) the availability and effectiveness of unconventional monetary policy (UMP) tools at the effective lower bound and (ii) the level of the real neutral interest rate. In particular, we show that when the real neutral rate is in line with the central tendency of estimates, raising the inflation target yields some improvement in macroeconomic outcomes. There are only modest gains if effective UMP tools are available. In contrast, with a deeply negative real neutral rate, a higher inflation target substantially improves macroeconomic stability regardless of UMP"--Abstract, p. ii.
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| Department/Agency | Bank of Canada. |
|---|---|
| Title | Could a higher inflation target enhance macroeconomic stability? / by José Dorich ... [et al.]. |
| Series title | Bank of Canada staff working paper, 1701-9397 ; 2018-17 |
| Publication type | Series - View Master Record |
| Language | [English] |
| Format | Electronic |
| Electronic document | |
| Note(s) | "April 2018." Includes bibliographical references (p. 28-32). Includes abstract in French. |
| Publishing information | [Ottawa] : Bank of Canada, 2018. |
| Author / Contributor | Dorich, José. |
| Description | 39 p. : col. charts. |
| Catalogue number |
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| Subject terms | Inflation Monetary policy Econometric models |