Bank of Canada paper analyses benefits of higher inflation target
Size of gain from higher target hinges on real interest rates, researchers say
The Canadian economy would only see a large benefit from a higher inflation target were if real interest rates were in “deeply negative” territory, a working paper published by the Bank of Canada argues.
In their paper, Could a higher inflation target enhance macroeconomic stability?, economists from the central bank examined whether there were benefits to raising the bank’s inflation target from 2% to 3% or 4%.
“The magnitude of the benefits hinges critically on two elements: (i) the
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