Do Canadians Want Zero Inflation? Some Evidence from a Model with 'Sophisticated' Voters

This paper uses a "sophisticated voter" model to infer the preferences of the Canadian public regarding macroeconomic policy and, more specifically, the optimal rate of inflation. Unlike most previous work on voter behaviour, the approach used here assumes that the public has some understanding of the limited goals that macroeconomic policy can achieve and that voters also recognize that an inflation rate other than zero may be optimal. Indeed, using public opinion data from 1957:3 through 1990:4, I estimate that the preferred inflation rate of the Canadian electorate is in the order of 7 to 8 percent. I also find that voter support for the incumbent federal party is significantly related both to that party's ability to limit fluctuations in real GDP and its ability to maintain inflation close to the preferred inflation rate.