TORONTO, Jan. 20 /CNW/ - The financial crisis underscores the role of
monetary policy in ensuring the economic prosperity of Canadians, and
highlights areas for improvement, according to a study released today by the
C.D. Howe Institute. In What is the Ideal Monetary Policy Regime? Improving
the Bank of Canada's Inflation-targeting Program, author Michael Parkin says
that while much is right with the Bank of Canada's inflation-targeting regime,
improvements should be considered in the lead-up to the 2011 renewal of the
program. They include:
- Price-level targeting: Target the level of the consumer price index,
rather than the inflation rate, ensuring that it rises by 2 percent a
year, and commit to lowering this rate of increase over the coming decade
until true price-level stability is achieved. The big difference with
current policy is that price-targeting would require the Bank to "undo"
past deviations from the target, rather than letting bygones be bygones.
- Financial stability monitoring: Closely monitor financial stress
indexes, asset prices, and the price of risk. When financial instability
is present or likely, the Bank should modify interest rate policy to head
off incipient crises, and explain the concern and the reason for action.
For the study click http://www.cdhowe.org/pdf/commentary_279.pdf
For further information:
For further information: Michael Parkin, Professor Emeritus of
Economics, University of Western Ontario; Robin Banerjee, Policy Analyst, C.D.
Howe Institute, (416) 865-1904, email: email@example.com.