In cases like these, movements in the relative value of the Canadian dollar help our economy to adjust with less fluctuation in output and employment than if the exchange rate did not move. And when our currency moves in response to those shocks, the inflation target helps to anchor expectations regarding its value in world markets.
[5] Excellent discussions on the drivers behind the decline are provided by, among others, Rachel, L. and Summers, L. (2019), “On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagnation”, Brookings Papers on Economic Activity, BPEA Conference Drafts, March; and Brand, C., Bielecki, M. and Penalver, A.