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.

dx.doi.org/10.1111/1540-5982.00129
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