Panel Discussion: Price Stability: The Goal of Price Stability: The Debate in Canada

Abstract

IN THE PAST THREE YEARS, the goal of price stability has been widely discussed in Canada. The debate has taken place both in the academic community and in the press, with the most notable contributions contained in two volumes published by the C. D. Howe Institute, and staff studies put out by the Bank of Canada (see Lipsey l990, York 1990, Selody 1990, and Cozier and Wilkinson 1990). The ongoing debate about price stability as a goal for Bank of Canada policy was set ofT by Governor Crow's remarks in the Hanson lecture of January 1988. In that lecture he made two key points about this issue first, that price stability yields a healthier economy than inflation and, consequently, that the aim of monetary policy should be to achieve a pace of monetary expansion that promotes price stability; and second, that it is not possible to achieve a predictable, stable positive rate of inflation such that the economy behaves in very much the same way as in a world with stable prices. Much of the subsequent discussion and debate can be divided into three main categories (with some contributions falling, of course, into more than one of the categories): first, the attempts to delineate and quantify the long-term benefits from price stability; second, the analysis of the transitory costs of achieving price stability; and third, attempts to search for structural or institutional changes that would reduce these transitional costs. A variety of subsidiary technical issues have also played some role in the debate, the most important being the appropriateness of the various price indexes as the focus of policy, and whether price stability really means