Financial Stability: The Next Frontier for Canadian Monetary Policy

Christopher Ragan
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Christopher Ragan: McGill University

C.D. Howe Institute Commentary, 2012, issue 338

Abstract: The monetary policy arrangement in Canada has proven very successful. Despite many and varied economic shocks, the Bank of Canada has established the necessary conditions under which the annual rate of inflation, as measured by the rate of change of the Consumer Price Index, has remained very close to its formal 2 percent target for more than 15 years. The recent financial crisis, however, has highlighted the fact that low inflation may not be enough to ensure the stability of the financial system and the economy in general. The goal of achieving and maintaining financial stability has become, in Canada and elsewhere, the next frontier of monetary policy. What is needed is a new Canadian institutional framework to oversee macro-prudential regulation, which would take a systemic approach to safeguarding the financial system as a whole, and clearly define the role of the Bank of Canada within it. It will require the federal government, first, to recognize the importance of the issue and, second, to take the necessary time to assemble the framework with the appropriate parties involved and to assign responsibilities clearly. Doing it right will involve bringing together various policy authorities with different perspectives, specialties, and primary mandates.

Keywords: Monetary Policy; Bank of Canada; inflation targeting; Consumer Price Index (CPI) (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (12)

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