tiff macklem : renewal of the monetary policy framework opening statement by mr tiff macklem, governor of the bank of canada, at the press conference on the renewal of the monetary policy framework, ottawa, ontario, 13 december 2021. * * * the objective of canada's monetary policy is to promote the economic and financial well - being of canadians. experience has shown that the best way monetary policy can achieve this goal is by maintaining a low and stable inflation environment. doing so supports a strong and inclusive labour market that provides every canadian with opportunities for a good quality of life. currently, the reopening of the global economy is associated with elevated inflation in canada and abroad. while this is a global phenomenon, it makes maintaining a sound framework for monetary policy in canada all the more important. from a longer - term perspective, since the adoption of an inflation - targeting framework 30 years ago, consumer price index ( cpi ) inflation has averaged close to 2 percent, despite periods of both upward and downward pressures on inflation. the maintenance of low, stable and predictable inflation has also contributed to canada ’ s strong labour market performance. in the current context, canada ’ s inflation - targeting framework helps to ensure that inflation will return to 2 percent over the medium term. the government of canada and the bank of canada believe that the best contribution of monetary policy to the well - being of canadians is to continue to focus on price stability. the government and the bank also agree that monetary policy should continue to support maximum sustainable employment, recognizing that maximum sustainable employment is not directly measurable and is determined largely by non - monetary factors that can change through time. further, the government and the bank agree that because well - anchored inflation expectations are critical to achieving both price stability and maximum sustainable employment, the primary objective of monetary policy is to maintain low, stable inflation over time. this renewal of canada ’ s monetary policy framework is occurring at a time when changes to the economy are complicating the task of monetary policy. the global financial crisis and covid - 19 pandemic have had a significant impact on the global economy and financial system, and major trends such as shifting demographics and new digital technologies are altering the economic landscape. climate change and the long - term transition to net - zero greenhouse gas emissions will drive structural change in the canadian and global economies. also, there is now greater recognition, supported by economic research, that when the benefits of economic growth and opportunity are more evenly shared, it leads to

targeting 2 per cent total cpi inflation, in recognition of the benefits of a slightly positive inflation rate in facilitating economic adjustments, and of the potential operational challenges associated with a lower target rate. 1 the lower the inflation target, the more likely it is that some nominal wages will occasionally need to decline to facilitate economic adjustment. if workers are reluctant to accept these declines, the process of real bis central bankers ’ speeches targeting an inflation rate lower than 2 per cent is intuitively appealing, since achieving the target still causes the price level to double roughly every 35 years, which may contribute to money illusion and more generally complicate inter - temporal decision - making. a lower inflation target could also further reduce the costly distortions associated with inflation, such as those stemming from difficulties in distinguishing between absolute and relative price changes, the cost of infrequent price and wage adjustments, and the disincentives to hold money. the bank ’ s research has generally found that the further benefits from reducing these distortions imply an optimal rate of inflation closer to, or even slightly below, zero. in a perfect world, we would pursue those gains through a lower inflation target. but we do not live in a perfect world. even the models that we employ to quantify the additional benefits of a lower inflation target – models that aspire to an economist ’ s utopia – disagree on how material those benefits would be. moreover, these models have typically abstracted from the very real - world costs and risks associated with very low rates of inflation, the most important of which is the risk associated with the zero lower bound ( zlb ) on interest rates. at this level, conventional monetary policy can no longer be used to stimulate the economy – a risk that was brought into stark relief during the recent crisis. the lower the inflation target, the lower the “ equilibrium ” nominal policy interest rate will be, and thus the greater the likelihood that shocks will push interest rates to the zlb during “ normal ” times. research at the bank and elsewhere suggests that encounters with the zlb should be quite rare with a 2 per cent inflation target, but may be more than four times more likely with a 1 per cent target and at least 16 times more likely with a zero per cent target. indeed, with a target below 2 per cent, it is likely that the zlb will be encountered through the ordinary course of the business cycle. the costs of hitting the zlb depend on the effectiveness, reliability and costs of available unconventional policy