BusinessWeek - Fed Avoiding Deflation May Rest on Canada Experiment

Montreal undergraduates may help reshape the Bank of Canada’s monetary policy and give Federal Reserve Chairman Ben S. Bernanke and Bank of Japan Governor Masaaki Shirakawa clues about how to ward off deflation.

About 240 students so far have spent two hours in a 25th-floor computer lab near McGill University, earning an average of C$30 by viewing combinations of economic data, including unemployment and gross domestic product, and then predicting what would happen to inflation. Central bank researchers are taking part in the project to see whether people can make such forecasts more easily if policy makers target specific levels in the consumer price index instead of the inflation rate - which might help households and companies make better decisions about spending and investing…

The students participating in the tests were drawn from a database created by the Montreal-based Center for Interuniversity Research and Analysis on Organizations. Jim Engle-Warnick, an associate professor of economics at McGill University, is leading the testing.