Over time, we have found that the best contribution that monetary policy can make is to try to keep inflation low, stable, and predictable, in order to provide the best setting for strong and sustained economic growth. The question then becomes, What should a central bank target in trying to bring this about?
Following Canada's return to a floating exchange rate system in 1970, the Bank of Canada tried to achieve a low-inflation environment by targeting the growth of money from 1975 to 1982. But the relationship between money growth and the rate of inflation proved to be unstable. So, in 1991, the Bank adopted an explicit inflation-targeting approach.