a function of the shocks hitting the economy. as well, the band or confidence interval around the target is held constant, even though it may sometimes be beneficial to worry less about inflation volatility in a period of highly volatile, but transient, shocks. finally, the time horizon for returning inflation to target is usually held constant. as a consequence, it can be too short to factor in fully the longer - run disruptions associated with, for example, building asset imbalances. the current parameters are not arbitrary. in canada, the 2 - per - cent target for the total consumer price index reflects the measurement bias inherent in the cpi, the risks associated with the zero lower bound and concerns about downward nominal wage rigidities. the 1 - percentage - point range around the target reflects the unconditional variance of the inflation process. 2 the 18 - to 24 - month time horizon reflects the lagged response to monetary policy action. 3 this inflexibility has significant value. it provides clarity of objectives and holds central bankers accountable. when policy lacks credibility, it can be beneficial to have simple inflexible elements in the framework because they demonstrate the policy - makers'commitment to that policy. if the inflation target is achieved, it enhances the credibility of the central bank and creates a virtuous circle whereby increased policy credibility further anchors inflation expectations, which then contribute to a more stable macroeconomic environment, which, in turn, enhances policy credibility. we should be careful neither to underweight the value of resulting simple heuristics nor to minimize the risks of complicating them. it can also be argued that the range should be conditional on the nature of the shock to inflation. note that in canada, unlike some countries, the cpi fully captures the direct effect on inflation of changes in house prices in the " owned accommodation " component of the cpi, which includes mortgage interest cost, replacement cost, property taxes, house insurance, maintenance and repairs, and " other owned accommodation expenses. " this component represents 16. 5 per cent of the cpi basket. when then to be flexible? once credibility is achieved and the operation of the framework better understood, could credibility be retained if the parameters were adjusted to reflect the characteristics of the shocks hitting the economy at any particular time? flexible inflation targeting works well with temporary or one - off shocks. whether it can adapt to address unique but longer - lived shocks ( such as an asset boom or secular changes wrought by globalization ) is the

. such a persistent error would reduce credibility over time. it is worth considering whether targeting the price level would enhance policy credibility in the face of a large, persistent shock. if anticipated, temporary price - level drift could be accommodated by extending the horizon, while credibility would be retained by the fact that the drift would be tracked and eventually reversed. if unanticipated, the promise to correct it that is central to price - level targeting could preserve credibility. the bank of canada is currently pursuing a research agenda to determine the gains from adding greater price - level memory to the inflation - targeting framework. conclusion to conclude, constraints in the policy framework may have helped to gain credibility for the framework when it was new, but now that it is better understood, it is time to ask whether we can do better. in principle, we could do better by making inflexible elements more flexible or by giving the framework more memory about the price level to compensate for any loss of credibility. doing so should increase social welfare by allowing policy to be better aligned with the natural adjustment processes in the economy, thereby adding to the social welfare benefits that come from delivering low, stable, and predictable inflation. see the presentation by blinder to this conference, published by the bis.