and the lacklustre global economy in its aftermath ; and, for much of the past decade, a strong canadian dollar — battered many of our export industries and splintered their supply chains. rebuilding them requires the emergence of brand - new industries and the development of new linkages to international trade networks. while it will take time for many of these adjustments to play out, we are now seeing encouraging signs that exports and business investment are broadening and strengthening. at the bank of canada, we have made a lot of progress in understanding the changing nature of world trade and especially why it has taken so long for our exports to recover. but as the dynamics of trade continue to evolve with technology and other forces, we will closely monitor and analyze these developments. this is essential, given the importance of trade to the economic well - being of canadians. i would like to thank patrick alexander and karyne charbonneau for their help in preparing this speech. 1 r. baldwin, “ trade and industrialization after globalization ’ s second unbundling : how building and joining a supply chain are different and why it matters, ” national bureau of economic research working paper no. 17716, 2011. 2 p. alexander, “ vertical specialization and gains from trade, ” bank of canada staff working paper no. 2017 – 17 ( april 2017 ). 3 k. m. yi, “ can vertical specialization explain the growth of world trade? ” federal reserve bank of new york, staff report no. 96, january 2000. 4 d. trefler, “ the long and short of the canada – u. s. free trade agreement, ” american economic review, american economic association 94, no. 4 ( september 2004 ) : 870 – 895. 5 ibid. 6 p. goldberg, a. khandelwal, n. pavcnik and p. topalova, “ imported intermediate inputs and domestic product growth : evidence from india, ” quarterly journal of economics 125, no. 4 ( 2010 ) : 1727 – 1767. 7 a. atkeson and a. t. burnstein, “ innovation, firm dynamics, and international trade, ” journal of political economy 118, no. 3 ( 2010 ) : 433 – 484. 8 j. schumpeter, business cycles : a theoretical, historical and statistical analysis of the capitalist process ( new york, toronto, london : mcgraw - hill book company, 1939 ). 9 university of saskatchewan, “ leading the

payments, and demand from rental car companies. at the same time, the supply of vehicles has been held back by earlier production cutbacks and shortages of semiconductor chips. this imbalance in supply and demand has caused used car prices to soar. looking forward, supply will slowly come back online, and i therefore expect car prices to stabilize and then decline over time to more normal levels. 2 / 3 bis central bankers'speeches we have already seen this type of dynamic play out in some sectors. the latest data show growth in wholesale used car prices slowing in the first half of june. 4 and lumber prices, which soared during the pandemic as housing demand surged and supply struggled to keep up, have declined sharply in recent weeks. i expect that as price reversals and short - run imbalances from the economy reopening play out, inflation will come down from around 3 percent this year to close to 2 percent next year and in 2023. it goes without saying that there is a great deal of uncertainty about the inflation outlook, and i will be watching the data closely. the fed ’ s policy response it ’ s clear that the economy is improving at a rapid rate, and the medium - term outlook is very good. but the data and conditions have not progressed enough for the fomc to shift its monetary policy stance of strong support for the economic recovery. specifically, the fomc decided last week to maintain the target range for the federal funds rate at zero to ¼ percent and made no changes to its program of asset purchases. in thinking about adjusting its stance in the future, the fomc has defined conditions and measures that will inform its decision - making. in terms of the federal funds rate, the fomc said it expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the fomc ’ s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. the fomc also said it will maintain its current asset purchase pace until substantial further progress has been made toward its employment and inflation goals. 5 conclusion i hope you remember the “ things we said today, ” but if not, here ’ s my final message. the sun is shining, both literally and figuratively. progress on vaccinations and the economy is very welcome news, and i look forward to a full and complete recovery, accompanied by inflation that averages 2 percent over time.