interest rate 46 times, and only four of these were reversals within a six - month window. if you look at the behaviour of other central banks, it is very similar — so it is not much of a surprise that other central banks have also cited uncertainty as a rationale for waiting. 16 for the business people in the room who have considered large capital expenditures, this reasoning must sound familiar. it can be useful to have the option value of waiting until you are more sure of the returns. this is particularly true if the investment is largely irreversible. as with investment, fixed costs of changing policy direction may explain a central bank ’ s aversion to reversals and motivate a wait - and - see approach to policy. that said, it is unclear how costly policy reversals are for the real economy. it is possible that the perceived costs are selfreinforcing because reversals are so rare that they are viewed as policy errors when they do occur, rather than as a sensible reaction to new information. uncertainty is not a reason for paralysis in decision making now for my final point. uncertainty is not a reason for paralysis in decision making. whether it is about how aggressive or how cautious policy should be, getting the dosage right demands sound judgment about complex trade - offs. just think about my last example about the wait - and - see approach. in central banking, there is no equivalent to the “ late - mover advantage. ” but even for a business, delaying investment too long leaves it vulnerable to the competition. checking the logic of this judgment through formal modelling exercises is good practice to inform our assessment of these trade - offs and to support decisions that stand the test of time. that is why research efforts at the bank are focused on some key areas. in particular, we are working to better model the dynamics between the real and financial sides of the economy, particularly the triggers for financial instability. this continues to be a blind spot. related to this is work to measure the effectiveness of macroprudential measures and unconventional monetary policy tools. there is also significant work under way studying inflation and wage dynamics, as governor stephen poloz spoke about last week in montreal. a longer - term objective relates to incorporating the effects of uncertainty that households and businesses face in their own decision making. these efforts will help improve base - case projections. 4 / 6 bis central bankers'speeches we supplement these projections with model - based risk scenarios. for example, bank staff

an overall contribution of household spending to annual gross domestic product ( gdp ) that was about 1¼ percentage points lower than it had been in 2017 and is a bit softer than we projected in our january mpr. we have been expecting an adjustment for some time. last march, my colleague deputy governor timothy lane noted in our first economic progress report speech that housing investment and consumption would, over time, contribute less as exports and business investment contribute more. this is partly because in mid - 2017 we had begun to remove some of the policy accommodation that had been in place for many years. since then, we ’ ve increased our policy rate from 0. 50 per cent to 1. 75 per cent in october of last year. our policy rate is transmitted to the economy through various channels. it affects returns on savings and investments as well as borrowing rates. it also has a small direct effect on inflation from higher mortgage interest costs. thus, it affects decision making by households and firms, influencing spending and borrowing patterns. after the global financial crisis, low borrowing rates led households to take on debt, primarily through the housing market. the ratio of household debt to disposable income rose and vulnerabilities related to the household sector increased. we have been closely monitoring these developments for some time. research in this area clearly showed that households would be more sensitive to interest rate movements than in past cycles, with the highly indebted most affected. 1 in 2017, we adjusted our models to account for this increased sensitivity. housing turning to the housing market, a combination of factors — some new and some already in place — affected it throughout 2018. 2 / 6 bis central bankers'speeches first, additional mortgage guidelines were introduced in january. they were aimed at improving the future resilience of new household debt. the guidelines introduced a new stress - test requirement for low - ratio mortgages. for some households, this meant a reduction in the amount that they could borrow. borrowers can adjust through various channels. they could choose to purchase a smaller home, buy in a different neighbourhood, rent rather than buy, or delay their purchase by saving for a larger down payment or waiting for prices to adjust. 2 the guidelines are having their intended effect. the quality of new borrowing has improved, with far fewer households taking out a mortgage with a debt - to - income ratio above 450 per cent. 3 second, rules were put in place over the past three years by various provincial and municipal governments to curb speculative activity