2019-05 (February 2019); for Canada, refer to J. Kronick and F. Omran, “Inflation After the Crisis: What’s the Story?” CD Howe Institute Essential Policy Intelligence E-Brief (July 9, 2019). - 14 anchored at 2 percent, this translated into a decline in the real interest rate of roughly the same amount.
This decline supported consumption and investment spending by households and firms, and helped promote demand through other channels, including the exchange rate. In contrast, if inflation expectations had not been well anchored, the reduction in our policy interest rate would have had less impact. Consequently, more monetary stimulus would have been necessary. Now, what about the role of communications in anchoring expectations?