job with this. certainly the bank of france was successful in the early 1990s in building credibility as an inflation - fighting central bank. at that time, the bank of canada and the government of canada had come to a shared appreciation of the damage that inflation can do. so they made an important decision in early 1991. they announced a joint agreement to adopt explicit inflation - control targets. the agreement has been very successful in giving canada low, stable, and predictable inflation. it has been renewed three times — most recently for five years until the end of 2006. today, both the bank of canada and the european central bank are working to strengthen the economies in their jurisdictions. we both want to promote stable growth and rising living standards. and, importantly, we agree that promoting low and stable inflation is the best means to those ends. there are similarities between our inflation - control systems. for example, we both focus on inflation, and we both aim for price stability over the medium term. but there are also some differences that i want to highlight for you today. the bank of canada aims for price stability through its inflation target of 2 per cent. on the other hand, the european central bank has an inflation ceiling of 2 per cent, as measured by the harmonized index of consumer prices. this may look like a subtle difference, but it is important. for the bank of canada, 2 per cent is the midpoint of our 1 to 3 per cent inflation - control target range. it is a target, not a ceiling. our focus on that midpoint makes it clear that we run monetary policy in a symmetrical way. that is to say, we pay equal attention to any significant movement away from 2 per cent — whether above or below. when demand is strong, it can push the economy against the limits of its capacity to produce. this will tend to raise future inflation above its target midpoint. in these circumstances, the bank will raise interest rates to cool off the economy, and return inflation to the target. but this process also works in the other direction. when demand is weak, as we saw in 2001, this means that future inflationary pressures are likely to ease. so the bank will lower interest rates to stimulate the economy, absorb economic slack, and return inflation to the target. by working in a symmetrical way in response to surprises in demand, our inflation - targeting system helps to smooth the peaks and valleys of the business cycle. this promotes sound, and generally less variable, economic growth

in mind that the degree of home ownership can vary considerably across countries. the more concentrated ownership of equities and bonds among households means that this component of the wealth distribution varies with the monetary stance, even while recalling that many households have indirect financial holdings through pension funds and other types of investment vehicles. from a broader perspective, we should also bear in mind that the contribution of monetary policy to changes in inequality is small, compared with the role of fiscal policy ( especially the degree of redistribution in the design of the tax and transfer systems ) and structural economic trends. differences across households also matter for the relation between aggregate income and aggregate consumption. in particular, if an increase in aggregate income is not uniform across households, the overall consumption response will depend on the marginal propensity to consume that is, the fraction of an additional euro received that is spent on consumption – of the different household types. a rich empirical literature has uncovered considerable heterogeneity in marginal propensity to consume across household types. in particular, this literature finds that the spending decisions of households owning few liquid assets are much more sensitive to shocks than the spending decisions of households that own sufficient liquid buffers. similarly, highly - indebted households tend to have a higher propensity to consume than savers. quantifying the implications for the transmission of monetary policy of heterogeneity in the marginal propensity to consume requires detailed institutional and socio - economic information on households at higher frequency. this type of information is available in certain countries and it is encouraging that researchers are starting to make use of it. the results indicate that this heterogeneity does play a role in shaping the transmission of monetary policy. beyond the intertemporal substitution channel, other channels have been highlighted by the expanding literature on heterogeneous - agent new keynesian ( hank ) models. [ 16 ] these include : a “ cash - flow ” channel, through which the decline in debt service for debtors means that they have more of their income available for spending ; an “ income ” channel, whereby higher consumption expenditure results from the increase in employment and wages ; and a “ wealth ” channel, such that the increase in asset valuations generates more spending through wealth effects. some initial estimates of the quantitative impact of all these channels are also available for the euro area. they are reported in chart 8, where households are classified into three groups : ( i ) renters with limited financial assets ; ( ii ) home