Inflation Targeting, Price-Level Targeting, and Fluctuations in Canada's Terms of Trade

Donald Coletti and René Lalonde
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René Lalonde: Bank of Canada, http://www.bankofcanada.ca/

Bank of Canada Review, 2007-2008, vol. 2007-2008, issue Winter, pages 37-45

Abstract: Coletti and Lalonde compare inflation targeting and price-level targeting in the context of a small open economy subject to sizable terms-of-trade shocks. The authors summarize recent research that compares the ability of price-level targeting and inflation targeting to stabilize the macroeconomy when confronted with shocks similar to those experienced by Canada in recent years. Their preliminary results suggest that price-level targeting may represent a feasible alternative to traditional inflation targeting. Their article also provides insight into the direction of current research in this area at the Bank.

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