TORONTO, Feb. 16 /CNW/ - Cutting the inflation target to 1 percent and
measuring it more accurately would have lasting economic benefits that
should outweigh short-term political objections, according to a study
released today by the C.D. Howe Institute. In Precision Targeting: The Economics - and Politics - of Improving
Canada's Inflation-Targeting Framework, McGill University economist Christopher Ragan proposes a coherent
five-part policy package for a renewed monetary policy agreement, due
in 2011, between the Bank of Canada and the federal government.
Professor Ragan proposes a coherent five-part policy package:
The federal government should devote the necessary financial resources
to Statistics Canada so that it can eliminate the most significant
biases in the CPI over the course of the next few years.
The Bank of Canada's formal inflation target should be reduced to 1
percent, perhaps gradually over the course of the new agreement.
The federal government should announce its intention to indemnify the
Bank of Canada against possible financial losses brought about through
changes in the value of government bonds purchased during (possible
future) episodes of quantitative easing.
The new inflation-targeting agreement should mention explicitly the
importance of financial stability, and that the Bank henceforth will
take financial stability into consideration when conducting its
monetary policy decisions.
The federal government should direct the Ministry of Finance, the Bank
of Canada, the Office of the Superintendent of Financial Institutions,
and other relevant parties to ensure that, among them, they have the
appropriate regulatory and oversight mechanisms in place, and
responsibilities for actions clearly assigned, so that policy
henceforth might be properly informed by concerns of financial
Political arguments, or inertia, might stand in the way of adopting
these policy changes, but their potential economic gains are
significant enough for the country as a whole that they should be
pursued, argues Professor Ragan.
For the study go to: http://www.cdhowe.org/pdf/Commentary_321.pdf
SOURCE C.D. Howe Institute
For further information:
Christopher Ragan, Associate Professor,
Economics, McGill University, and David Dodge
Chair in Monetary Policy, C.D. Howe Institute;
Philippe Bergevin, Policy Analyst, C.D. Howe Institute.