Monetary Policy and Economic Activity in Canada in the 1990s

Abstract

Growth in output and employment in Canada in the 1990s did not match that of earlier decades, or that in the United States. Monetary policy rules estimated for each country illustrate important policy differences between Canada and the United States. In the early 1990s Canadian monetary policy placed primary emphasis on a sharp reduction in inflation and performance was weak. United States' monetary policy balanced inflation control and output stabilization, and performance was strong. These findings argue for future Canadian monetary policy that provides support for stable output growth and inflation targets, not just inflation reduction and targets.