The Bank of Canada and Zero Inflation: A New Cross of Gold?

Robert Lucas

Canadian Public Policy, 1989, vol. 15, issue 1, 84-93

Abstract: What are we to make of the policy announcement by Governor John Crow that the primary objective of the Bank of Canada is to eradicate inflation from the Canadian economy? This paper evaluates the policy both from comparative static and dynamic viewpoints. An analysis of credibility suggests that the Bank is wrong in its belief that a failure to eliminate inflation must necessarily imply that inflation will accelerate. Because the policy appears to be based on a misplaced fear of renewed inflation, and because many of the regional economies are not in a position to weather another fight on inflation, the author concludes that the policy is not appropriate at this time.

Date: 1989
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