- to longer - term perspective in making decisions. the global forces at play are not going to disappear any time soon. we therefore need to encourage flexibility and adaptability in the canadian and ontario economies. in other words, more needs to be done to enhance the functioning of our internal markets. policies that support flexibility can obviously help economies adjust to cyclical economic shocks. but encouraging flexibility can also have a longer - term payoff. when policies provide an environment where initiative and innovation can flourish, the canadian economy is able to adapt to longer - term global forces in ways that continuously exploit our comparative advantages. thank you for your attention. i would now be happy to respond to your questions and comments.

cannot. these no doubt will sound familiar as the canadian economy has been going through a period of adjustment during which the challenges for many industries and their employees have become more intense than usual. moderate movements in the exchange rate topping the list of concerns are exchange rate movements. any significant upward or downward movement in the canadian dollar is virtually guaranteed to bring forth pleas for central bank action to, at least, moderate the movement and lessen its effects on the economy. we went through this in 1997 - 98, when the canadian dollar depreciated markedly in response to the decline in world demand and commodity prices. and since 2003, we have repeatedly been urged to deal with the reverse situation - that is, a sharp appreciation of our currency, primarily reflecting strong world demand and high prices for energy and other commodities. in response, we have stressed that movements in our currency are largely a reflection of market forces at work in the world environment in which canada operates. in other words, the changes that we have seen in recent years represent a global reality. we simply cannot wish them away. and they will continue, regardless of the level of our policy interest rate and regardless of whether we have a fixed or a floating exchange rate. monetary policy cannot change the reality of these developments. nor can it somehow eliminate the need for our economy to adjust to global forces and trends that are fundamental in nature. to be clear, this is emphatically not to say that, in setting policy, we won't take into account the effects that any adjustments related to global change - including the reallocation of resources across sectors are likely to have on the production capacity of our economy. nor does it say that monetary policy will not take into account any effects that global developments and relative price movements will have on aggregate demand for canadian products. indeed, before announcing our interest rate decisions eight times a year, we assess all of the factors that have implications for the balance of demand and supply in the economy, and thus for the conduct of monetary policy. exchange rate movements are among those factors. but i must clarify that the response of monetary policy to exchange rate movements depends on the reason for those movements. more importantly, it depends on the overall net effect that such movements and other developments are expected to have on aggregate demand in canada. in general, there are two types of exchange rate movement. the first reflects a direct real change in the demand for canadian products stemming from a strengthening ( or weakening ) of world economic activity and any associated