Message to Jack Layton and the NDP: monetary policy is not out of reach of Parliament

If the leader of the NDP wants to improve the way monetary policy is conducted in Canada without breaching the doctrine of central bank independence, I would suggest that he and his party use their influence in the upcoming Parliament to require that the government and the Bank of Canada modify their agreed-upon inflation-control target. The timing seems right given that the operational target that the Bank uses to control the level of inflation is due to be renewed at the end of the year.

There is considerable evidence that the current target of 2 percent is too low to ensure an acceptable level of employment and adequate exchange rate (for instance, to support the economy's export market). Speaking in relation to the US, Paul Krugman has recently explained that a target of 4 percent would go a long way to help the economy get closer to full employment. Mr. Krugman's arguments could easily be applied to Canada, as well. The question of whether low inflation targets are desirable was also recently raised by senior IMF economist, Olivier Blanchard, within the context of an IMF-sponsored conference aimed at identifying ways of improving macroeconomic policymaking.

From a political standpoint, I can assure Mr. Layton that many parliamentarians would appreciate having a debate on the merits of low-inflation at all costs. Finally, while he's at it, Mr. Layton should also ask officials at the Bank what they intend to do about the recent increase in unemployment in the face of what appears to be, at most, mild inflation.