Arbeitspapier
Could a higher inflation target enhance macroeconomic stability?
Recent international experience with the effective lower bound on nominal interest rates has rekindled interest in the benefits of inflation targets above 2 per cent. We evaluate whether an increase in the inflation target to 3 or 4 per cent could improve macroeconomic stability in the Canadian economy. We find that the magnitude of the benefits hinges critically on two elements: (i) the availability and effectiveness of unconventional monetary policy (UMP) tools at the effective lower bound and (ii) the level of the real neutral interest rate. In particular, we show that when the real neutral rate is in line with the central tendency of estimates, raising the inflation target yields some improvement in macroeconomic outcomes. There are only modest gains if effective UMP tools are available. In contrast, with a deeply negative real neutral rate, a higher inflation target substantially improves macroeconomic stability regardless of UMP.
- Sprache
-
Englisch
- Erschienen in
-
Series: Bank of Canada Staff Working Paper ; No. 2018-17
- Klassifikation
-
Wirtschaft
Business Fluctuations; Cycles
Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
Interest Rates: Determination, Term Structure, and Effects
Monetary Policy
- Thema
-
Economic models
Inflation targets
Monetary policy framework
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Dorich, José
Labelle, Nicholas
Lepetyuk, Vadym
Mendes, Rhys R.
- Ereignis
-
Veröffentlichung
- (wer)
-
Bank of Canada
- (wo)
-
Ottawa
- (wann)
-
2018
- DOI
-
doi:10.34989/swp-2018-17
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:46 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Dorich, José
- Labelle, Nicholas
- Lepetyuk, Vadym
- Mendes, Rhys R.
- Bank of Canada
Entstanden
- 2018
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