The deputy governor of the Bank of Canada spoke to Hiro and me about inflation targeting on Tuesday. Some other kids were there too.
“One of the passions I have, outside of economics, is history. I will be putting inflation targeting in a historical context,” David Longworth said after being introduced by chair Burbage at the outset of the talk.
I think it would have been a snoozer for many, it seemed like this guy was more used to talking to old white guys in business suits. I found the subject matter interesting and you could tell from how he responded during question period that he was a good guy and concerned about people understanding the topic. He also seemed super smart.
- He talked about the changes in monetary policy in Canada over time.
- Canada was the first country in the post-war period to move to flexible exchange rates in 1950
- There were periods of high inflations during the oil crisis
- There were other changes along the way, changing back to a set exchange rate and so forth, but
- In Feb 1991 the Bank changed to inflation targeting.
- Over a year or so they brought the target down to around 2% (between 1% and 3%)
- He said that Canada was the first, but NZ and Chile both claim also to be the first, but he made arguments against those claims
- He showed some graphs indicating the confidence in the ability of the bank to control inflation
- One graph showed the difference between nominal and inflation adjusted bond rates
- Another showed the proportion of employment contracts with cost of living adjustment clauses (the idea is if inflation is going to be stable and low a COLA would not be necessary)
- The next graph showed the average length of collective bargaining agreements has increased to an average of 42 month (again with stability you can be more confident that what you negotiate now will be worth as much in the future)
During question period people seemed to be trying to sound smart:
- “Why do we still have a fiat money system?” — “As opposed to what?”
- “There has been so much growth in the commodity index compared to CPI. . . . Are you saying that the commodity market is inefficient?” — “No.”
- “My research is on this topic . . . (five minutes pass) . . . ?”