david dodge : canada ’ s monetary policy approach : it works for canadians remarks by mr david dodge, governor of the bank of canada, to the edmonton chamber of commerce, edmonton, alberta, 26 june 2001. * * * i welcome this opportunity to talk to you today. in recent months, the debate over canada's exchange rate system has heated up and calls for the adoption of a common currency with the united states have attracted a lot of attention. today, i would like to revisit the issue of the appropriate exchange rate regime for canada and to set out as clearly as possible the bank's position. i propose to frame my discussion in terms of canada's approach to monetary policy. i will conclude with some comments on the current economic situation. the goal of monetary policy and how to achieve it the bank of canada's commitment is to contribute to the economic well - being of canadians. this means conducting monetary policy so that it fosters sustained economic growth – by creating conditions that favour rising output, employment, and incomes, and a stable macroeconomic environment. low, stable, and predictable inflation experience over time and across countries has taught us that the best contribution monetary policy can make to a sound economy is to preserve confidence in the value of money. fundamentally, this means that canadians should be able to count on their central bank to keep future inflation low, stable, and predictable. in this way, they can go confidently about their affairs, making sound economic decisions. this, in turn, should lead to better economic performance nationally. seen in this light, the focus on low inflation is not an end in itself, but rather a means to an end – the end being the advancement of the economic well - being of canadians. of course, a low - inflation policy by itself is not sufficient to guarantee the best economic outcome for canada. fiscal prudence and other policies that aim to improve the structure and flexibility of the economy are also essential. but low inflation provides a crucial underpinning to a well - functioning economy. if the goal of monetary policy is to achieve and preserve low inflation, how would the central bank go about it? anchors for monetary policy when a central bank raises or lowers its key policy interest rate, it sets in motion a series of events that starts with the financial markets, works through changes in spending, output, and employment, and ends with an effect on the rate of inflation. this series of events is known as the transmission mechanism of monetary policy. the

about one - quarter of the total value of home loans outstanding in australia. nature of the data let me make a few brief remarks about the nature of the data. for each housing loan, we collect ( de - identified ) data on around 100 fields including : loan characteristics, such as balances, interest rates, loan type ( e. g. principal - and - interest ( p & i ), interest - only ), loan purpose ( e. g. owner - occupier, investor ) and arrears status ; borrower characteristics, such as income and the type of employment ( e. g. pay as you go ( payg ), self - employed ) ; details on the collateral underpinning the mortgage, such as the type of property ( e. g. house or apartment ), its location ( postcode ) and its valuation. 4 1 / 13 bis central bankers'speeches the dataset is updated each month with a lag of just one month. the frequency and timeliness of the data allow us to observe changes in interest rates, progress on repayments ( i. e. the current loan balance ) and the extent of any redraw or offset balances ( just to name a few ) without much delay. i should note that, while the dataset covers a significant share of the market for housing loans, it may not be entirely representative across all its dimensions. in particular, the choice of assets in the collateral pool may be influenced by the way that credit ratings agencies assign ratings and by investor preferences. also, in practice it may take quite a while until new loans enter a securitised pool. i ’ ll mention one important example of this later. now let ’ s look at some interesting things we have learnt from this dataset. 1. interest rates in the years prior to 2015, banks would generally advertise only one standard variable reference rate for housing loans. 5 there was no distinction, at least in advertised rates, between investors and owner - occupiers, or between principal - and - interest and interest - only loans. that changed when the banks responded to requirements by the australian prudential regulation authority ( apra ) to tighten lending standards, with a particular focus on investor loans. then, earlier this year, apra and the australian securities and investments commission ( asic ) further tightened lending standards : this time the focus was on interest - only lending. a key concern has been that interest -