* New inflation or price-level targets still options
* BoC to study its role in securing financial stability
* Must be cautious, price stability will not be sacrificed

KINGSTON, Ontario, Aug 24 (Reuters) - The Bank of Canada is studying the possibility of expanding its mandate to include a greater role in leaning against asset bubbles to prevent financial crises, in addition to its current role of ensuring low prices, a senior official said on Tuesday.

Since 2006, the bank has been researching the options of either lowering its inflation target or adopting an alternative price-level target. The bank has an agreement with the Canadian government to target 2 percent inflation. That agreement on the monetary policy framework is up for renewal at the end of next year and the bank is looking into possible changes.

Deputy Governor John Murray said in a speech that a third component has now been added to its research as central bankers reexamine their job in light of the global financial crisis: Whether the monetary policy framework should be modified to give greater recognition to financial-stability concerns.

The central issue that remains is whether monetary authorities should be expected to go further than the prescripts of flexible, forward-looking inflation targeting would suggest. If so, what form would it take, Murray said.

But he made clear that no decisions have been made on any of these fronts and that the bank would be extremely cautious not to sacrifice price stability.

So far, the bank's research has shown that lowering its inflation target from the current 2 percent would improve economic welfare. But the magnitude of the benefit is unclear, he said.

Price-level targeting differs from inflation targeting in that any deviation from a specific numerical target for the consumer price index must be corrected. If prices overshoot the target in one period, they must come back down in a future period, whereas under inflation targeting bygones are bygones, Murray said.

Shifting to a lower inflation target and/or moving to a price-level target are still possibilities, and in some respects look even more promising than they did before the crisis, although other aspects of our research results and recent experience lend an extra air of caution, Murray said in a speech to the Canadian Association for Business Economics in Kingston. (Reporting by Ka Yan Ng; Writing by Louise Egan; editing by Peter Galloway)

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