Or, if inflation has been above trend, lifting the price level above its target, the central bank would need to temporarily induce below-trend inflation to return the price level to its target path over time. 5  See various articles, Bank of Canada Review (Ottawa: Bank of Canada, Spring 2009).
With its anti-inflationary credibility increasingly at risk, the Bank would be forced into action – it would abandon its hypothetical attempt to control the dollar, interest rates would rise significantly to slow the excessive growth in the economy, unemployment would increase and inflation would eventually make its way back down to target.