And the short-run relationship between output and inflation—what economists call the Phillips curve—appears weaker than in the past in Canada and in many other countries.4 Again, COVID-19 has only reinforced this challenge, accelerating structural change and affecting workers very unevenly.
What we learned With our horse race, we set out to compare flexible inflation targeting with alternatives—average inflation targeting (AIT), a dual mandate that targets both inflation and employment, nominal gross domestic product targeting and pricelevel targeting. In our modelling and simulations, three frameworks—flexible inflation targeting, AIT and a dual mandate—had broadly similar overall performance and were superior to the other alternatives.