Is the Bank of Canada Meeting its Inflation Targeting Mandate?
Using Canadian monthly CPI data from 2000 to April 2013, I test whether Canadian monthly inflation is stationary and mean-reverting. An ARMA process is then fitted to test whether monthly inflation is symmetric. Finally, confidence intervals for medium-term inflation are constructed using the historical data. Monthly inflation is found indeed to be stationary, mean-reverting and symmetric with long-run anchored inflation around 2%. Moreover, inflation is anchored within the medium term at 2% with high confidence. I thus conclude that the Bank of Canada has been successful in meeting its inflation targeting mandate. Given that the Bank of Canada can indeed target inflation, I present this as evidence that the Bank could successfully target any other nominal variable (in lieu of inflation), such as nominal GDP.
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