Price-level-path targeting would suit Canada

Simple price-level-path targeting performs slightly better than simple inflation targeting when the Canadian economy is confronted by shocks, states a new Bank of Canada research.

The paper also shows that when limiting the analysis to the shocks most important for explaining fluctuations in Canada's terms of trade, price-level-path targeting also delivers superior macroeconomic stability relative to inflation targeting.

The analysis tested for shocks similar to those seen over the 1983 to 2004

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