What I mean by the term “nominal anchor” is a clear target for monetary policy, a way to give people confidence that policy is on track, and a way to tie down or “anchor” expectations of future inflation. The Bank of Canada searched for such an anchor throughout the 1970s and 1980s. The outcome of that search was our eventual adoption of inflation targets.
In February 1991, the Bank and the federal government announced a series of inflation-reduction targets. The authorities saw explicit inflation targets, with a clear time frame to achieve them, as a way to shape inflation expectations. This would make it easier to reduce inflation and, at the same time, make the central bank accountable for its actions.