MNI BRIEF: BOC Paper Touts Benefits of Inflation Overshooting

Bank of Canada economists said overshooting the central bank's inflation target may provide benefits in restoring the job market after a downturn and dealing with complications when interest rates approach zero, according to a research paper published Tuesday.

The benefits depend on assuming the central bank commits to an inflation overshoot, and the move succeeds in creating a temporary boost of inflation expectations that shifts back down again later. The paper by Robert Amano, Marc-Andre Gosselin and Kurt See was written independently of Governor Tiff Macklem and his deputies.

Sources have told MNI the BOC could end up holding its key rate of 0.25% for longer than investors expect into 2023, using its flexibility on its 2% inflation target and mirroring the Fed's goal of an inclusive jobs recovery, although Macklem said last week he will stick to his single inflation target.