paul jenkins : what monetary policy can and cannot do remarks by mr paul jenkins, senior deputy governor of the bank of canada, to the canadian institute of actuaries, ottawa, ontario, 29 june 2006. * * * i am very pleased to be here today. as canada's central bank, we are committed to conduct monetary policy in a way that fosters confidence in the value of money. this is our primary responsibility. but the bank has a number of other functions that are very important to economic life in canada. we promote the safety and soundness of the financial system. we supply quality bank notes that are readily accepted without concerns about counterfeiting. we provide efficient and effective central banking and debtmanagement services. and, of course, we communicate our objectives openly and effectively as part of our commitment to be accountable for our actions. today, i will focus on our main function - the conduct of monetary policy. specifically, i want to talk about what monetary policy can do and, by implication, what it cannot do. the bank's monetary policy mandate the bank of canada act of 1934 requires us to " regulate credit and currency in the best interest of the economic life of the nation, to control and protect the external value of the national monetary unit and to mitigate... fluctuations in the general level of production, trade, prices and employment, so far as it may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of canada. " this is a fairly broad mandate, with multiple policy objectives. so one can understand why people might think that monetary policy can do more than it really can. but why does the preamble say " so far as may be possible within the scope of monetary action? " i believe that this is how the legislators meant to recognize the complexity of the economy and the fact that not all of the policy objectives in the preamble would be achievable through monetary policy action alone. as economists, we deal with this complexity by looking separately at different areas and aspects of the economy - industries, sectors, regions, various demand components such as consumption, investment, government spending, etc. then we add up all this information to get a better overall picture before taking policy action that is appropriate for the economy as a whole. we can use a similar approach with the preamble - pulling apart its various pieces and focusing on them separately. long - run economic performance so let me start with the

all know there is still slack ( chart 4 ). the participation rate has not fully recovered and the percentage of involuntary part - time workers has risen about 5 percentage points ( chart 5 ). in addition, wage growth has been moderate and is expected to remain so. this is one reason why monetary policy has been so exceptionally accommodative for so long. interest rates have been at or near historic lows since the crisis began. adjusted for cpi inflation, the policy real interest rate has been negative, on average, since the end of 2008. with a well - functioning financial system, the bank has provided exceptional policy stimulus to our economy, consistent with growing activity and employment and consistent with achieving our inflation target. longer - term trends any analysis of recent employment performance should consider the broader context of an evolving workplace in the global economy. first, the share of employment in manufacturing has steadily declined across advanced economies, falling from 25 per cent to 14 per cent in the three decades leading up to the crisis. even in germany, the share of employment fell from 32 per cent to 19 per cent over this period. in this context, canada ’ s record is about average, with a decline from 18 per cent three decades ago to about 10 per cent today ( chart 6 ). in part, this reflects the substitution of capital for labour, such as the increased use of robotics on assembly lines. it also reflects the changing nature of globalisation. in both goods and services, the current wave of globalisation is changing the nature of production and the demand for labour. in the first wave of globalisation at the turn of the last century, the combination of sharp falls in transportation costs and large economies of scale in factories promoted the concentration of production and manufacturing employment. in the current wave, which began in the late 1980s, huge advances in communications and computing technologies have dramatically lowered the costs of coordination across stages of production. this has promoted the distribution of these stages to the most cost - effective locations. one consequence has been a shift of fabrication jobs to low - wage locations in emerging markets. even in services, complex tasks, such as professional and health services, are now being separated into their higher - value - added and routine components, leading to outsourcing and job displacement. with companies increasingly part of global supply chains, competitive advantage will increasingly be concentrated in stages of production ( such as engineering and design or fabrication ) rather than specific sectors ( such as aerospace or automobiles ). bis central bankers ’ speeches