  The Lucas critique has exposed the problem of the trade-off between changes
in monetary policy and structural breaks in economic time series. The search
for and characterisation of such breaks has been a major econometric task ever
since. We have developed an integral technique similar to CUSUM using an
empirical model quantitatively linking the rate of inflation and unemployment
to the change in the level of labour force in Canada. Inherently, our model
belongs to the class of Phillips curve models, and the link between the
involved variables is a linear one with all coefficients of individual and
generalized models obtained by empirical calibration. To achieve the best LSQ
fit between measured and predicted time series cumulative curves are used as a
simplified version of the 1-D boundary elements (integral) method. The distance
between the cumulative curves (in L2 metrics) is very sensitive to structural
breaks since it accumulates true differences and suppresses uncorrelated noise
and systematic errors. Our previous model of inflation and unemployment in
Canada is enhanced by the introduction of structural breaks and is validated by
new data in the past and future. The most exiting finding is that the
introduction of inflation targeting as a new monetary policy in 1991 resulted
in a structural break manifested in a lowered rate of price inflation
accompanied by a substantial fall in the rate of unemployment. Therefore, the
new monetary policy in Canada is a win-win one.
