Inflation,ExpectationsandMonetaryPolicy.pdfVIP

Remarks by Agathe C?té Deputy Governor of the Bank of Canada Association québécoise des technologies Mont-Tremblant, Quebec 19 February 2015 Inflation, Expectations and Monetary Policy Introduction Thank you for inviting me to be with you today. I am delighted to be here. At the Bank of Canada we need a thorough understanding of what is happening in the economy—not only at the aggregate level, but also at the level of individual agents, such as entrepreneurs like yourselves. You have an impact on the economy, and thus on the Bank. Similarly, the Bank has an impact on business conditions, and in turn on you. This relationship is well illustrated by the topic of my speech today: inflation expectations and the role they play in the conduct of monetary policy. Central banks have long understood the importance of inflation expectations. It is widely accepted that a key benefit of an inflation-targeting system, such as the one we have had in Canada since 1991, is that it provides a good anchor for expectations. That being said, there are still many questions about how people form their expectations. While central banks exercise a great deal of influence on expectations, there are many other factors that can come into play. So, therefore, it is critical to carefully measure and interpret the signals sent by a variety of economic agents. In my remarks today, I will explain why inflation expectations are so important to monetary policy and what role they might have played in the puzzling evolution of inflation that followed the financial crisis. I will also talk about the survey that the Bank of Canada has just created to better understand the evolution of expectations. Finally, I will turn my attention to current events and talk about today’s inflation expectations, including those o