Although many countries have faced similar shocks over the past few years, their experiences with high inflation have not been the same as Canada’s. Our paths back to target might differ as well. For a trading nation like Canada, what does this mean?
How will the Canadian economy adjust if our inflation path is different than, say, that of our main trading partner, the United States? The answer to this question requires us to discuss another key element of the Bank’s inflation-targeting framework—Canada’s flexible exchange rate. The Bank of Canada doesn’t set the dollar’s exchange rate.