to the bureau of economic analysis, hit a remarkable us $ 666 billion, or 5. 6 % of gdp, in 2004. and so we have seen the u. s. dollar depreciate against many major currencies, including the canadian dollar. in this example, the stronger canadian dollar leads to a decline in net exports, just as in the previous example. but in the absence of an initial increase in demand to be offset, the overall effect on canadian aggregate demand would clearly be negative. and this decrease in demand - if it were to persist - would generate downward pressure on canadian prices and employment that could push inflation below our target. all other things being equal, this would require monetary policy to be more stimulative than it otherwise would have been. to be clear, i don't want you to think that we at the bank have a mechanical or formulaic approach to dealing with exchange rate movements. the truth is exactly the opposite. analyzing foreign exchange movements and determining the appropriate monetary policy response is a complicated business. when we look at the movement of the canadian dollar against the u. s. dollar over the past couple of years, it is clear that the upward movement during this period has been driven by both stronger demand for canadian goods and services, and by widespread weakness in the u. s. dollar. but there have been times during this period when the first factor appears to have been the strongest influence, and at other times, it appears that the second factor dominated. how businesses are adjusting now that i have talked about how the bank of canada deals with exchange rate movements, let me turn to how the real economy is adjusting to global economic developments, and to the large relative price movements associated with them. it is interesting to compare the experience of the past two years with that in the period from 1997 to 2002. from the beginning of 1997 to the end of 2001, falling commodity prices led to a decline of more than 6 per cent in canada's terms of trade - the ratio of the prices canadians receive for their exports to the prices canadians pay for their imports. at the same time, " irrational exuberance " about the prospects for the u. s. economy led to heavy financial flows into the united states, and this helped to drive up the value of the u. s. dollar relative to other currencies. the canadian dollar fell from just under 75 cents us in early 1997 to a low of 61. 8 cents us in january

thomas jordan : monetary policy – achieving a balance between inflation and growth summary of a speech by mr thomas jordan, member of the governing board of the swiss national bank, at the annual meeting of the swiss venture club, berne, 2 september 2008. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * following several settled years, the international downturn in the economy, high commodity prices and the ongoing financial market crisis is challenging central banks on a number of fronts simultaneously. by comparison with other countries, switzerland is in a relatively good position thanks to the continued strength of consumption, full order books, full employment, low inflation by international standards and few excesses in the real estate market. however, the global economic decline is likely to reach switzerland, albeit with a certain lag. in particular, the economic slowdown now becoming apparent in europe could have a considerable impact on the swiss business cycle by reducing the demand for our exports. moreover, the pessimistic mood in the financial markets is not likely to be conducive to the creation of value in the financial sector. however, the relative stability of the swiss franc should continue to support our exports. the recent rise in the swiss rate of inflation to over 3 % is mainly attributable to first round effects, i. e. to the direct results of the increase in oil prices. if, as expected, second round effects remain contained, the rate of inflation should drop back below 2 % during the course of 2009, and long - term inflation expectations should remain low. based on these assumptions, current monetary policy is appropriate. however, if inflation does not fall back due to second round effects as expected, the snb would need to counter this development in order to anchor price stability.