on top of a devastating health crisis. but central banks around the world aggressively lowered their policy rates and deployed a range of facilities that kept markets functioning and credit flowing. and the next two years saw central banks use forceful combinations of conventional and unconventional stimulus to support consumption and guide their economies to strong recoveries. as you ’ ll see in chart 2, these fiscal and monetary policy measures effectively expanded public sector balance sheets to offset pressures that would have strained balance sheets in the private sector. of course, such policy measures are not without their costs or risks. and taking prudent steps to normalize government and central bank balance sheets is important to help bring down inflation today and ensure room to respond to future downturns. at the bank of canada, this normalization is underway with our quantitative tightening program. 5 see m. o. ravn and v. sterk, “ macroeconomic fluctuations with hank & sam : an analytical approach, ” journal of the european economic association 19, no. 2 ( april 2021 ) : 1162 – 1202. - 7chart 2 : total government expenditures and central bank assets increased in several advanced economies percentage of gross domestic product, annual data ( panel a ), quarterly data ( panel b ) a. total general government expenditures b. total central bank assets % % % canada euro area united kingdom united states japan note : for some countries, 2021 values are preliminary. source : international monetary fund via haver analytics last observation : 2021 bank of japan ( left scale ) bank of canada ( right scale ) us federal reserve ( right scale ) european central bank ( right scale ) bank of england ( right scale ) sources : bloomberg and bank of canada calculations last observation : 2022q2 all told, there are encouraging lessons to be learned from the speed and scale with which policy - makers were able to marshal stimulus measures in response to covid - 19. this allowed the canadian and other economies to bypass many of the pain points that often follow recessions — setting the scene for a historic bounce back in labour markets. with many students in the audience, i ’ ll also stress that young people — especially those who recently entered the labour market — have been key beneficiaries of this. in past recessions, scarring effects meant that people entering the labour market often took years to catch up to other cohorts. 6 i certainly don ’ t want to imply that coming into the labour market over the past few years has been easy. but the rapid

should have been more alert to the possibility that the nature of global spillovers can change over time. a better understanding of these dynamics and how policy actions can ripple around the world should enable more effective global responses to future shocks. labour market recoveries and balance sheets next, i ’ d like to discuss how the labour market has recovered from the pandemic. i ’ ll also talk about the role that balance sheets have played in making that recovery stronger than recoveries following previous downturns. the left - hand panel of chart 1 shows how unusual the recovery phase of the pandemic has been relative to historical experience. despite an unprecedented initial drop, canadian employment took only about 20 months to return to its prerecession peak. this is about 6 months faster than we experienced coming out of the gfc, and at least 18 months ahead of the tepid recoveries that followed recessions in the 1980s and 1990s. as shown in the right - hand panel, the difference in the recoveries following covid - 19 and the gfc was even more pronounced in the united states. research and history teach us a lot about the forces that made many previous recoveries so slow. one lesson is that recessions that take a significant toll on the financial health of businesses, financial institutions or households are often followed by weak recoveries. 4 4 see r. c. koo, the holy grail of macroeconomics : lessons from japan ’ s great recession ( singapore : john wiley & sons ( asia ) pte. ltd., 2009 ) ; a. mian and a. sufi, “ what explains the - 5chart 1 : relative to past downturns, employment in canada and the united states recovered quickly from the covid - 19 recession index : last pre - recession peak level of employment = 100, seasonally adjusted, monthly data a. employment in canada index b. employment in the united states index 8 12 16 20 24 28 32 36 months since last pre - recession peak in employment 8 12 16 20 24 28 32 36 months since last pre - recession peak in employment covid - 19 recession 1981 – 82 recession covid - 19 recession 1981 – 82 recession 1990 – 91 recession 2001 recession 1990 – 92 recession 2008 – 09 recession 2007 – 09 recession sources : statistics canada, us bureau of labor statistics and bank of canada calculations last observation : august 2022 a good example is the united states during the gfc, when a collapse in house prices left many ind