June 22, 2021 – When the Bank of Canada and the Government of Canada renew their inflation targeting agreement later this year, they should beware of mission creep, says former Deputy Governor John Murray. In “Mission Creep and Monetary Policy,” Murray notes that a number of proposals have come forward for expanding the mandate of monetary policy beyond its central goal of achieving and preserving price stability.
These proposals include suggestions that monetary policy promote a greener economy, give greater emphasis to full employment, tackle income inequality, restrain the price of housing and accept greater responsibility for safeguarding financial stability.
While these are all good and worthy goals, Murray argues that this sort of mission creep risks undercutting monetary policy’s ability to fulfill its primary responsibility and is neither necessary nor helpful to the attainment of these additional challenges.
“The issue is assigning the right policy tool to the right goal. In this regard, it is best to keep the mandate for monetary policy simple and focused,” states Murray. “Some modifications might be contemplated with a view to enhancing monetary policy’s ability to fulfill its existing role, but the bar for any change is exceptionally high.”
For more information contact: John Murray, Senior Fellow, C.D. Howe Institute, former Deputy Governor, Bank of Canada; or David Blackwood, Communications Officer, C.D. Howe Institute, 416-873 6168, dblackwood@cdhowe.org.
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