2018-20 Imperfect inflation target may need overhaul: Bank of Canada

According to Carolyn Wilkins, the Senior Deputy Governor of the Bank of Canada and Laurier BA in economics gradate, the inflation targeting framework is going to be revised
The Bank is considering a few options

• setting a higher target at time of economic stress
• longer-range inflation target
• shifting to targeting growth
• introducing dual mandate: targeting both inflation and GDP growth or employment.

Problem: in the current environment of low interest rates, the Bank may not have enough room to maneuver if the next recession hits. Before the Great Recession the policy rate was 4.25%; now it is only 1.75%.

Additional tools of monetary policy:

• negative interest rates
• purchasing long-term assets.

The second approach is called quantitative easing. It raises the price of long-term assets and lowers long-term interest rates.

In preparation for the renewal of the Bank framework in 2021, the Bank will look at alternative approaches and will try to see if any are better.