We develop a new way to test hypotheses about policymakers' targets and implement that test for Canadian monetary policy. For example, if the Bank of Canada is targeting a 2 per cent inflation rate, and if the Bank's instrument takes eight quarters to affect inflation, then deviations of inflation from 2 per cent should be uncorrelated with the Bank's information set lagged eight quarters. We show that there was a major change in the Bank's objectives near the time when formal inflation targets were announced and that the Bank has indeed been targeting inflation since then.

Canadian Journal of Economics
Department of Economics

Rowe, N, & Yetman, J. (James). (2002). Identifying a policymaker's target: An application to the Bank of Canada. Canadian Journal of Economics, 35(2), 239–256. doi:10.1111/1540-5982.00129