The agreement, which has been renewed every five years since 2001, gives our approach legitimacy—that is crucial in a democratic society. And having an explicit number for a clear target like the inflation rate makes it easy to judge our work. Importantly, the agreement also gives inflation targeting additional credibility, which has made it more effective.
This credibility has grown with our success in hitting the target. The combination of inflation targeting with a floating exchange rate has given Canada scope to pursue a truly independent monetary policy, suited to our specific conditions. The framework has also given us flexibility to respond to economic shocks.