The Interactive Evolution of Economic Ideas and Experience - The Case of Canadian Inflation Targeting

David Laidler

No 20151, University of Western Ontario, Economic Policy Research Institute Working Papers from University of Western Ontario, Economic Policy Research Institute

Abstract: In Canada, targeting the inflation rate was intended as a temporary measure on a journey to price-level stability, but became a well-established monetary policy regime in its own right. This paper analyses the role of the interaction of economic ideas with the experience generated by their application to policy in bringing about this outcome. In the following account, changing beliefs about the stability or otherwise of ongoing inflation, the capacity of a flexible exchange rate to create a vicious circle of depreciation and rising domestic prices, and about the roles played by the natural unemployment rate and money growth in influencing economic outcomes are emphasised. Today’s standard DSGE approach to modelling inflation targeting arrived on the scene only after the Canadian regime was well established.

Keywords: Money; Monetary Policy; Inflation; Inflation-targeting; Interest Rates; Unemployment; Exchange Rate (search for similar items in EconPapers)
JEL-codes: B2 E5 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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