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The Bank of Canada and Zero Inflation: A New Cross of Gold?

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  • R. F. Lucas

Abstract

What are we to make of the policy announcement by Governor John Crow that the primary objective of the Bank of Canada is to eradicate inflation from the Canadian economy? This paper evaluates the policy both from comparative static and dynamic viewpoints. An analysis of credibility suggests that the Bank is wrong in its belief that a failure to eliminate inflation must necessarily imply that inflation will accelerate. Because the policy appears to be based on a misplaced fear of renewed inflation, and because many of the regional economies are not in a position to weather another fight on inflation, the author concludes that the policy is not appropriate at this time.

Suggested Citation

  • R. F. Lucas, 1989. "The Bank of Canada and Zero Inflation: A New Cross of Gold?," Canadian Public Policy, University of Toronto Press, vol. 15(1), pages 84-93, March.
    • Handle: RePEc:cpp:issued:v:15:y:1989:i:1:p:84-93
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    References listed on IDEAS

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    1. Thomas J. Sargent & Neil Wallace, 1984. "Some Unpleasant Monetarist Arithmetic," Palgrave Macmillan Books, in: Brian Griffiths & Geoffrey E. Wood (ed.), Monetarism in the United Kingdom, pages 15-41, Palgrave Macmillan.
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    Cited by:

    1. Brian O'Reilly, 1998. "The Benefits of Low Inflation: Taking Shock "A nickel ain't worth a dime any more" [Yogi Berra]," Technical Reports 83, Bank of Canada.
    2. T.P. Koirala, Ph.D, 2010. "Welfare Costs of Inflation in Nepal: An Empirical Analysis," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 22(1), pages 57-68, April.
    3. Freedman, Charles, 1990. "La politique monétaire des années 90 : leçons et enjeux," L'Actualité Economique, Société Canadienne de Science Economique, vol. 66(2), pages 147-186, juin.
    4. T.P. Koirala Ph.D, 2010. "Welfare Costs of Inflation in Nepal: An Empirical Analysis," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 22, pages 57-68, April.
    5. Macdonald, Martha, 1995. "Economic restructuring and gender in Canada: Feminist policy initiatives," World Development, Elsevier, vol. 23(11), pages 2005-2017, November.

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