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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Renseignements sur la publication
Ministère/Organisme Bank of Canada.
Titre Could a higher inflation target enhance macroeconomic stability? / by José Dorich ... [et al.].
Titre de la série Bank of Canada staff working paper, 1701-9397 ; 2018-17
Type de publication Série - Voir l'enregistrement principal
Langue [Anglais]
Format Électronique
Document électronique
Note(s) "April 2018."
Includes bibliographical references (p. 28-32).
Includes abstract in French.
Information sur la publication [Ottawa] : Bank of Canada, 2018.
Auteur / Contributeur Dorich, José.
Description 39 p. : col. charts.
Numéro de catalogue
  • FB3-5/2018-17E-PDF
Descripteurs Inflation
Monetary policy
Econometric models
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