Open AccessInteractions among Economic Ideas, Policies and Experience - The Establishment of Inflation Targeting in Canada, 1991-2001
Author(s) -
David Laidler
Publication year - 2020
Publication title -
review of economic analysis
Language(s) - English
Resource type - Journals
ISSN - 1973-3909
DOI - 10.15353/rea.v12i2.1693
Subject(s) - economics , depreciation (economics) , inflation (cosmology) , exchange rate , inflation targeting , monetary policy , price of stability , unemployment , virtuous circle and vicious circle , economic stability , macroeconomics , keynesian economics , monetary economics , inflation rate , economic growth , physics , financial capital , theoretical physics , capital formation , human capital
In Canada, targeting the inflation rate was intended as a temporary measure during a transition 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, are emphasised, while ideas about the natural unemployment rate and money growth in influencing economic outcomes are also discussed. Today’s standard theoretical approach to modelling inflation targeting arrived on the scene only as the Canadian regime was becoming well established.