Okay. I'm not sure your colleagues will have a chance to follow up, given the range of important questions there.
On the first point, I'll refer to the answer of my colleague on the optimal rate of inflation: the value of that 2%. We have done work on the potential value of lowering that. We have published some of that work, and we'll publish the rest of it in due course, well in advance of the renewal of discussions on the inflation target. I'll leave it there.
To be absolutely clear in terms of the interest rate and the conduct of monetary policy in Canada, we have the tools we need to achieve the 2% inflation target. There are lags with the operation of monetary policy. We can't instantly change monetary policy today and correct an overshoot or an undershoot on inflation tomorrow. It takes time: think in terms of a year to an 18-month type of timeframe.
Sometimes it takes a little longer when there are certain factors that are overlaid. Today, for example, we see inflation fully returning to target. It's very close to target over the forecast horizon, but it will fully return to target about two years from now.
There will be intervening events between now and then that will have an impact. We'll adjust the policy accordingly, if they are viewed to be more permanent than transitory.
We have the tools we need to achieve our objective, and it's our responsibility to achieve that objective.
On price-level targeting, to give a little more colour to what I said earlier, the issue there is a path for the level of prices, as opposed to a rate of change in the level of prices. In that regard, at any given point in time that there is a deviation from the price path.... And let's think of a 2% price path, so if prices today are 100, they'll be 102 a year from now. If inflation were 3% this year, for whatever reason, the commitment under price-level targeting is that we would conduct monetary policy to make up that overshoot in subsequent years so that inflation would go from 102, and ultimately it would end up at 104.--the senior deputy minister can do the math very quickly.
We adjust policy in order to achieve that price path over time. So the bygones aren't bygones; we make up the misses.
Why would we possibly do that? What's the advantage of doing that? It's greater certainty on the price level for individuals. So if you're making a long-term contract or you're buying a 10-year bond, the expectation is that the cumulative amount of inflation over the course of that 10-year contract or bond will be more likely to be the level that is consistent with the price path. For that and other reasons, there are potential benefits to price-level targeting.
On your question regarding whether anybody does it, the short answer is that nobody actually price-level-targets today. Sweden did, briefly, in the Great Depression. The United States had a form of it. It wasn't actually run through the Federal Reserve, but it was a commitment by President Roosevelt that he would return to the 1929 price level that was enacted.
It is a powerful mechanism, potentially, to avoid deflation. What one does when one says we are going to return the price level back to that path is to ensure that bygones aren't bygones, that undershoots on inflation will be made up. The consequence of that is real interest rates, which are what really drive decisions ultimately--the difference between the nominal headline rate of inflation and the expected level of inflation, that real number--will be more consistent with the plan of the central bank, and that promotes investment.
I'm giving a short version of it--you may not feel that it is a short version--and we will happily furnish the committee with more, if required.