and credible set of policy tools at the ready to achieve these objectives in both normal times and exceptional circumstances. it also, ideally, rests on a foundation where other policies that affect economic and financial stability complement monetary policy objectives. let me now turn to some of the main alternatives to our current framework and give you a tour of what we know about them already, and highlight some of the outstanding questions. some of the options are like home renovations, work that improves the existing framework. others are more like buying a completely new house. those who look at the written version of my remarks will notice more footnotes than usual — a testament to the depth of good work in this area. what about renovating the current framework? for over two decades, canada ’ s monetary policy framework has centred on an inflation target of 2 per cent — within a control band of 1 to 3 per cent — and a floating exchange rate. 10 the control band is there because inflation fluctuates in response to temporary factors, such as changes in gasoline prices, that don ’ t warrant a monetary policy response. it also allows the bank to be flexible in how aggressively we pursue the target. the bank chooses the pace of interest rate moves in a way that limits swings in aggregate income, while still achieving the target within a reasonable timeframe. we might also adjust the pace to limit the buildup of financial vulnerabilities. 11 some economists have suggested that we could address the issue of limited firepower by raising the level of the inflation target to, say, 3 or 4 per cent. 12 they argue that a higher inflation target would restore some conventional policy room 9 see m. carney, “ a monetary policy framework for all seasons ” ( speech to the u. s. monetary policy forum, new york, new york, february 24, 2012 ). 10 see “ why has canada ’ s inflation target been set at 2 per cent? ” bank of canada backgrounder, may 29, 2012. 11 see “ the bank ’ s risk - management approach to monetary policy, ” bank of canada renewal of the inflation - control target : background information — october 2016. 12 see o. blanchard, g. dell ’ ariccia and p. mauro, “ rethinking macroeconomic policy, ” journal of money, credit and banking 42, no. 1 ( 2010 ) : 199 – 215 ; l. m. ball, “ the case for a long - run inflation target of four percent, ”

toward 2021 : reviewing the monetary policy framework remarks by carolyn a. wilkins senior deputy governor of the bank of canada mcgill university max bell school of public policy november 20, 2018 montreal, quebec choosing the best monetary policy framework for canada “ whereas it is desirable to establish a central bank in canada to regulate credit and currency in the interests of the economic life of the nation, to control and protect the external value of the national monetary unit and to mitigate by its influence fluctuations in the general level of production, trade, prices, and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of canada... ” preamble, bank of canada act it is a pleasure to speak here at the max bell school of public policy. as many of you know, bell was a shrewd business person and media mogul during an era that witnessed the great depression, the second world war and canada joining the world stage. he was also dedicated to public affairs and the greater good of canadians. it is therefore fitting that i am here today to add to a conversation about the best monetary policy framework for canada. the bank of canada opened its doors during bell ’ s era, in 1935, to support the economic and financial welfare of canada. what that has meant in practice has naturally changed quite a lot over the years to keep up with a complex and evolving world. 1 for the last quarter of a century, the bank ’ s monetary policy framework has been focused on targeting low and stable inflation, in the context of a flexible exchange 1 see : c. ragan, “ the evolution of canadian monetary policy : successful ideas through natural selection, ” in new directions for intelligent government in canada : papers in honour of ian stewart ( ottawa : centre for the study of living standards, 2011 ). i would like to thank gino cateau, jose dorich and yasuo terajima for their help in preparing this speech. not for publication before november 20, 2018 12 : 45 p. m. eastern time - 2rate. this is not just the bank ’ s goal, it is shared with the federal government — both acting on behalf of the people of canada. this is formalized in what is called the inflation - control agreement. it is renewed every five years and has been supported by six prime ministers of different partisan stripes. we are working on the next renewal, set for 2021, with our finance colleagues. having a formal