to inhibit the smooth operation of commodity markets. some of these take the form of price ceilings or subsidies to households, which elevate demand for certain commodities and often reduce supply. others involve subsidies to producers, which may divert needed resources to different uses. a prime example is the support for biofuels, which reduces the amount of arable land available for food production. the fourth and final set of suggested reforms involves a number of initiatives that governments ought to take, as opposed to the various things that they should stop doing. the former include structural reforms to make their economies more flexible and resilient to shocks and, more generally, encouraging rather than resisting necessary adjustments to changing market conditions. conclusion as we have seen, commodity prices are notable for three things : their remarkable stability in the long run ; their sizable and persistent swings in the medium run ; and their exceptional volatility in the short run. these tendencies pose an enduring challenge for consumers, producers and policy - makers. over the long run, economists such as prebisch and singer 11 once worried that commodity producers would suffer ever - declining terms of trade relative to manufacturers. more recently, this view seems to have been overturned, with some economists now worrying about the costs that ever - increasing commodity prices will impose on consumers. over the medium run, economists are concerned about the negative effects that large and persistent swings in commodity prices can have on the macroeconomy by destabilizing output and spurring inflation. in the short run, highly volatile prices, despite their temporary nature, can impose tremendous costs on some of the most vulnerable members of the global community. before racing to solution, however, it is important to understand what forces are driving these prices. available evidence suggests that most of the major swings, as well as a large proportion of the short - run volatility that we observe, can be explained by market fundamentals. although speculation and what might be termed “ excessive investor interest ” might play a role in exaggerating these price movements, the supporting evidence is at best mixed. policy - makers determined to take corrective action should therefore proceed with caution. without a clear diagnosis it is difficult to talk about remedies and policy fixes with any confidence. there are, nevertheless, a number of measures that almost all economists can agree on, no matter where they lie on the fundamentals - to - destabilizing speculation continuum. they include improved transparency and structural reforms that will remove harmful barriers, make

mark carney : summary of the latest monetary policy report update opening statement by mr mark carney, governor of the bank of canada, at a press conference following the release of the monetary policy report update, ottawa, 22 january 2009. * * * good morning. we are pleased to be here with you today to discuss the january monetary policy report update, which we published this morning. the outlook for the global economy has deteriorated since the october monetary policy report, with the intensifying financial crisis spilling over into real economic activity. heightened uncertainty is undermining business and household confidence worldwide and further eroding domestic demand. major advanced economies, including canada's, are now in recession, and emerging - market economies are increasingly affected. commodity prices – especially energy prices – have fallen as a result of substantially weaker global demand. stabilization of the global financial system is a precondition for economic recovery. to that end, governments and central banks are taking bold and concerted policy actions. there are signs that these extraordinary measures are starting to gain traction, although it will take some time for financial conditions to normalize. in addition, considerable monetary and fiscal policy stimulus is being provided worldwide. canadian exports are down sharply, and domestic demand is shrinking as a result of declines in real income, household wealth, and confidence. canada's economy is projected to contract through mid - 2009, with real gdp dropping by 1. 2 per cent this year on an annual average basis. as policy actions begin to take hold in canada and globally, and with support from the past depreciation of the canadian dollar, real gdp is expected to rebound, growing by 3. 8 per cent in 2010. a wider output gap through 2009 and modest decreases in housing prices should cause core cpi inflation to ease, bottoming at 1. 1 per cent in the fourth quarter. total cpi inflation is expected to dip below zero for two quarters in 2009, reflecting year - on - year drops in energy prices. with inflation expectations well - anchored, total and core inflation should return to the 2 per cent target in the first half of 2011 as the economy returns to potential. global developments pose significant upside and downside risks to the inflation projection. on the upside, the global economy could be stronger, if global fiscal stimulus turns out to be more expansionary than expected, or if aggressive policy actions taken across major economies restore confidence more quickly than projected. on the downside, the global recession could be deeper and more protracted because