Interest Rates, Unemployment and Inflation: The Canadian Experience in the 1990s

MACROECONOMICS
ARTICLE SUMMARY

The following work is an attempt to summarise the article namely “Interest Rates,
Unemployment and Inflation: The Canadian Experience in the 1990s,”by the author Pierre
Fortin. The author in his work provides a critique of the monetary policy of Canada, back in
the 1990s. The said critique work has been developed by the author over a decade of
observations. The main theme of the article is that owing to the slowdown in the early 1990s
of the US economy the growth of Canada has also slowed down. However, the author points
out the loopholes in the Canadian economic system leading to the inferior performance of the
Canadian economy. The review is mainly concentrated on the unemployment and the
economic inflation factors of the Canada economic performance.
In the initial part of the article, the article sheds light on the inflation and the unemployment
statistics of Canada in comparison to the performance of other OEC countries. One of the
chief points highlighted in the work that had formed the base for the said economic distress is
stated to be the monetary mechanism. It has been stated in the work that the period had
witnessed a consistent fall in the Canadian Dollar exchange rate, par below the US rate. The
effect was further aggravated by the high unemployment rates in the economy over the period
of six years. It has been argued by the writer that there were high lending rates prevailing in
the country, together with unemployment but a contrasting low inflation rate in the market.
Thus, the author is suggestive of enhancement of the monetary conditions. Further, the rise in
the lending rate and exchange rate of Canadian dollar also led to the marring of the aggregate
spending and output, which lowered down the exports for the entities and thus the profits. It
is suggested by the author that it is imperative for the economies to set a specified inflation
target for the conducting of a monetary policy. The step not only lead to the stabilization of
the inflation but also indicates to the public and the organisations the objective of the
monetary policy of the government. Thus, there can be stated to be conflicting aims in
context of the low employment and the low inflation. It has been pointed out that the first half
of the decade had not performed well in terms of the economic performance, as characterised
by the rate of inflation plunging down at the faster rate than was expected by the government.
The main culprits of the same are stated to be the all levels of the government being exposed
to the fiscal issues. The Bank of Canada had made severe attempts to bring the interest rates
down, however the international developments, nervousness in the markets and domestic
political situations led to the failure of the said attempts. Thus, the attention has been laid
down on the fiscal policy of the government as well. The year 1988 had already started to
witness the increment in the debt-service costs, the rise in social expenditures, rising risk