, mortgage rates shifted into a lower range in the late 1990s. in part, this reflected a global trend toward lower inflation and interest rates. but it also reflected the fact that the bank of canada had built some credibility around its inflation - targeting policy, which began in 1991. canadians had come to expect that inflation would remain low, and interest rates moved lower accordingly. this is when our long - term rise in household debt took root. the situation took another dramatic turn in the wake of the global financial crisis in 2008. central banks slashed interest rates, in some cases to zero and beyond, and kept them at historically low levels for an extended period. internationally coordinated fiscal and monetary actions from 2008 to 2010 provided stimulus and helped the world avoid a second great depression. but our economy has struggled to gain traction in the last 10 years, not least because our recovery was interrupted by the collapse in oil prices in late 2014. today, inflation is on target and the economy is operating very close to potential. however, given the lingering effects of the shocks we have faced, the economy still requires stimulus. let me make a very basic and important point here. policy stimulus has a cost, whatever form it takes. whether delivered by monetary or fiscal policies, stimulus encourages growth by bringing forward household spending and business investment, financed with debt. i spoke about these debt dynamics in the purvis lecture two years ago. if fiscal policy takes the lead in stimulating the economy, this can result in a buildup of government debt. if monetary policy takes the lead, this brings about a buildup in household debt. in both cases, stimulus leads to a buildup of debt over time, whether public or private. and excessive debt levels create a vulnerability, making the economy less resilient to future shocks. this is why policy - makers need to consider the debt consequences of the mix of fiscal and monetary policy. 2 / 5 bis central bankers'speeches the burden of debt ultimately, what matters most is the burden of servicing debt relative to income. in other words, the lower the interest rate, the more debt a given household can afford to carry. for this analysis, we look at the debt - service ratio, which is the required payments of interest and principal expressed as a percentage of income. remarkably, the aggregate debt - service ratio on mortgages for canadian households has been very stable, remaining within a range of 5 to 7 per cent since the early 1990s. what this means is that canadians have taken advantage of lower

future. our best judgment about these uncertain factors will continue to be taken into account. but, overall, this episode is clearly showing that monetary policy actions can be used more flexibly than fiscal policy actions. i would stress that discretionary fiscal policy can also get governments into trouble if it leads them to neglect their long - run fiscal anchor — particularly since discretionary action is more likely to be associated with an easing in policy than a tightening. this neglect would risk eroding fiscal credibility — the trust that the public has that the fiscal targets will be met. policy co - operation and stabilization now let me turn to the issue of policy co - operation and policy coordination. our inflation targets are joint targets. they are not just the bank ’ s targets — they are the targets of the government of canada as well. our view is that, essentially, " coordination " came through the joint agreement on inflation targets. with clear agreement on the medium - term policy objectives and with a shared understanding of the policy framework, there is no need for coordination on the setting of interest rates and fiscal policy instruments. the economic literature on policy coordination tends to be about situations where the fiscal and monetary authorities have one or more of the following : very different views of economic welfare, this is also the view of cecchetti ( 2002 ) and taylor ( 2000 ). for an opposing view, see seidman ( 2001 ). much earlier, boulding ( 1969 ) summarized an academic session on recent experiences in the use of fiscal policy with a poem including the following lines, "... policy may follow fillip ’ s law — too little and too late, too much too soon.... " for the canadian federal government, the limitation of discretionary fiscal policy as a stabilizer is compounded by the fact that canadian provincial governments taken together represent a larger share of the economy than the federal government does, and their spending structure ( which includes more spending on capital than the federal government ) better lends itself to discretionary spending for stabilization purposes. that is, their " loss functions " are very different. inconsistent policy objectives, policy that is totally discretionary, or a tendency to get involved in gamelike behaviour with one another. none of these applies in canada — and none should apply anywhere. given our policy framework, when the government changes fiscal policy, it needs to think of how these changes will affect inflation and, consequently, interest rates. similarly, the bank of canada needs to consider