Finance committee  I think my answer is that you have seen a massively expansionary monetary policy in the last three years, and I can't imagine.... Well, I can imagine what a more expansionary policy would look like; it would have been U.S.-style or U.K.-style quantitative easing. But we have had expansionary monetary policy.

Finance committee  On the nominal GDP targeting, I do believe that in Canada—it's less true in the United States—there will be a decline in GDP growth that will be significant over the next 25 years from population aging. I think that is almost inevitable, frankly. Nominal GDP targeting would then have either a steadily increasing inflation rate, which I don't think is a good thing, or it would have steadily adjusted official targets, which I think, from a communications point of view, would be about as close to a nightmare in monetary policy as I can imagine.

Finance committee  Thank you. That's an excellent question. I think one thing that economists and monetary policy-makers have learned over the past 30 years is that an important part of keeping inflation on target, whatever that target is, is about keeping expectations anchored. This is why the communication of monetary policy is so important.

Finance committee  Thank you. I'm happy to be led down that path. In my view, what enhances the anchoring of inflation expectations is a very simple, easily understood objective, and today and for the past 20 years there has been absolute clarity in that objective: the inflation target was 2%, period.

Finance committee  --but there would no longer be a target on inflation or real GDP. It would be the sum of the two. In a world of full employment targeting, as full employment.... And Mario suggests quite rightly that in fact our measures of full employment or NAIRU move over time. Of course they move over time.

Finance committee  Then I'll add nothing to what Craig said.

Finance committee  Well, when you said “fiscal policy to reduce debt”, it wasn't clear to me whose debt you were worried about.

Finance committee  Actually, I'm in uncharacteristic agreement with Mario. There are many problems, many challenges ahead. Most of them do not relate to monetary policy. Monetary policy has to be recognized as a blunt instrument that cannot be used to solve a large set of problems. It can really be targeted at one, which is where the price level is going over the long run.

Finance committee  On the 0% inflation idea, there is a compelling argument, actually, or at least a compelling benefit from having 0% inflation, and that is that the money we use would retain its value. I worry less actually than Craig about periods of deflation followed by periods of inflation. My concern is if we actually have a target of 0% inflation, there are potential costs that come possibly from the 0% lower bound, possibly from the inability of labour markets to fully adjust.

Finance committee  I have two quick comments to add to Craig's. Number one, I think the last few years show the value of the flexibility of an inflation-targeting system. With the inflation expectations very well anchored, it liberated, if you like, the Bank of Canada to be very aggressive in its policy response.

Finance committee  Thank you. That's an excellent question, and a perennial one in Canada. We have many sectors. We have many regions. The sectors often line up with the regions, so very often the issue arises as to whether it's desirable to have a flexible exchange rate, for example, which is an important part of Canada's monetary policy system.

Finance committee  I would be in favour of maintaining the inflation targeting system. I think 2% is a reasonable target. I certainly would not suggest increasing the target. I see no genuine or likely benefit from increasing the target. I would consider reducing the target, although I think there's a legitimate debate about whether the benefits from lowering the target to 1.5% or 1% would outweigh the costs.

Finance committee  Thank you. This will relate to comments that Jim and Mario just made. You will notice, if you've read the Bank of Canada's background agreement, that they talk about the flexible inflation-targeting framework. While that word may have been used less in the past years than it is used now, in that document the concept of flexibility has always been an important part of inflation targeting.

Finance committee  Another point on the full employment targeting comes back to my point about the modesty of monetary policy. There has been a growing recognition over the years that central banks have a very difficult time influencing real variables in a systematic way over the long run. The central bank's balance sheet, which is its only instrument, is fundamentally a nominal variable.

Finance committee  Thank you for inviting me. Canada's monetary policy is very important to Canadians' living standards, and I'm very happy to be discussing details—sometimes contentious details—with my peers. I should begin by clarifying my affiliation. I notice that Mario was listed as representing himself, but I am listed as representing McGill University.