Stagflation and the Bank of Canada

Ever wonder what the Bank of Canada might do in the event of staflation (high/rising inflation & high /rising unemployment)? Wonder no more. In an interview with LaPresse, our new Governor Mark Carney states, in no uncertain terms, that the Bank’s objective would remain the same as it has been since the early 1990s, namely keeping inflation on target at 2%.  As for the unemployed , don’t worry — everything will work out just fine in the mythical long run:

“Pour nous, en cas de stagflation, il n’y a que la partie flation qui nous préoccupe, souligne M. Carney. Si les attentes inflationnistes changent, nous allons nous ajuster. Une cible d’inflation permet des communications simples. Atteindre notre cible reste la meilleure contribution que nous pouvons faire pour l’économie canadienne.”

Kinda makes one pine for a good dose of U.S. monetary policy, where the Fed has (until recently) had to work on the basis of a dual mandate of low inflation and unemployment. Maybe monetary union wouldn’t be such a bad thing after all…

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