were eroded by rising prices. speculation was rampant. and the economic booms that led to rising inflation ended up in recessions. one of the things we learned from this bitter experience is that high inflation injects additional uncertainty into decision making. in a market economy, prices contain valuable information. when the price of a product is rising relative to other products, it's a signal that that particular product is becoming scarcer. producers are then encouraged to increase its supply, while consumers are encouraged to economize on its use, thus alleviating the scarcity. conversely, a drop in the price of a product is a signal that it is becoming more abundant. when this happens, firms are led to reduce their supplies of the product, and consumers are encouraged to increase their demand for it. but when inflation is high and variable, buyers and sellers are never quite sure what a price increase means. is it a sign that a specific good is becoming scarcer, or is it just a sign of more widespread inflation? this uncertainty means that prices no longer convey as much useful information, and, as a result, people find it difficult to make sound decisions about production and investment. they focus on trying to protect themselves against the effects of inflation. investors won't commit their resources for lengthy periods ; labour negotiations become more acrimonious ; and the overall economy is not as productive as it could be. indeed, with the erosion of confidence in money comes an erosion of confidence in the fairness of markets. as former bank of canada governor gerald bouey aptly put it in his 1981 annual report, " inflation melts the glue that holds free societies together. " the lesson we ( and other central banks ) have learned in the past 30 years is that low and stable inflation is the best contribution that monetary policy can make to a strong economy. since 1991, the bank of canada has conducted monetary policy with an explicit numeric target for inflation, a target that is set jointly with the government of canada. since 1995, the inflation target has been the 2 per cent midpoint of a 1 to 3 per cent range. it was last renewed 5 years ago, and is coming up for renewal this year. having a clear objective has increased the bank of canada's accountability to canadians. it has made it easier for the bank to explain its actions and easier for people to judge how the bank is doing in meeting its objective. once canadians believed that the bank would take action to

as workers, entrepreneurs, investors, borrowers and taxpayers. similarly, there are several channels through which our policies affect pension systems. yes, lower rates increase the present value of future liabilities of pension schemes. however, the liability side of pension schemes is only one part of the equation. what happens on the asset side is also important. and our monetary policy has had a beneficial impact on this side of the equation as the value of the investment portfolio has increased. also, let ’ s not forget that our monetary policy supports pension systems indirectly by supporting employment growth and thus pension contributions. in any case, it is ultimately up to sound governance structures and longterm strategies to ensure the financial health of pension systems. equally, monetary policy can have an impact on bank profitability through various channels. our assessment is that so far these effects tend to largely offset each other in aggregate terms. low rates might reduce bank profits through the narrowing of net interest margins. yet, at the same time, by supporting the recovery, accommodative monetary policy reduces delinquencies and defaults, including on mortgages. improved credit quality coupled with higher lending volumes and an improved market value of assets supports bank profitability. of course, depending on the strength of their balance sheet, some banks may be more affected than others. also banks facing structurally high cost - to - income ratios or limited diversification of income sources might have to revamp their business models regardless of the low interest rate environment. finally, let me also address the risks of overheating in some parts of the financial markets. we do not currently see compelling evidence of overstretched asset valuations at the euro area level, but we do see that real estate dynamics or high household debt levels in some countries signal the risk of increasing imbalances. such risks also exist in the netherlands : they relate to the continued very high level of household indebtedness and the low level of mortgage collateralisation. for this reason, we share the concerns expressed in the warning issued by the european systemic risk board in november 2016 and recognise that there is a case for mitigating measures. that being said, monetary policy is not the appropriate tool for addressing local and sectoral financial risks. rather, targeted macroprudential policies, which can be tailored to local and sectoral conditions, are the right answer. 1 the way forward against the backdrop of a recovery that is becoming increasingly solid, the benefits of our policy clearly outweigh