NEW YORK, Feb. 24, 2012 /CNW/ - In a speech today to the U.S. Monetary
Policy Forum, Bank of Canada Governor Mark Carney reviewed the
advantages of Canada's flexible inflation-targeting regime. Citing a
"complex and continuously evolving world that no one can predict with
certainty," Governor Carney said that flexible inflation targeting
"provides a robust framework for all seasons."
A flexible inflation-targeting regime "allows central banks to deliver
what is expected while dealing with the unexpected," the Governor said.
He discussed the monetary policy needs of both crisis and non-crisis
economies, and noted that a robust IT framework has the "ability to
deal with the very different challenges faced by both."
Governor Carney acknowledged that the global financial crisis "has
shaken the foundations of monetary economics" and that monetary policy
frameworks, including inflation targeting, are under intense scrutiny.
In his remarks, the Governor considered the main arguments made by
opponents of inflation targeting, and provided a detailed rebuttal.
The Governor also discussed the merits and drawbacks of nominal
GDP-level targeting, a framework that some have argued could facilitate
the deleveraging process in the crisis economies. While NGDP-level
targeting "does not, in our view, amount to a complete policy
framework," it may merit consideration as a temporary unconventional
monetary policy tool when a central bank's policy rate is stuck at the
zero lower bound, he said. "The exceptional nature of the situation,
and the magnitude of the gaps involved, might make such a policy more
credible and easier to understand."
Not only does a flexible IT framework enable the central bank to deal
with shocks, it also provides the flexibility to address a build-up of
financial vulnerabilities, the Governor said. "A virtue of flexible IT
is that if the regime is credible, the inflation target can anchor
inflation expectations while leaving room for policy-makers to
occasionally use monetary policy for financial stability purposes."
In concluding, Governor Carney said the Bank of Canada will use the full
potential of flexible inflation targeting to deliver price stability
and to enhance the economic welfare of Canadians.
SOURCE Bank of Canada
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