to work for the economic benefit of all canadians. it's therefore crucial that we keep our focus on the national inflation rate. we can't concentrate on just one region, because at any given time, it's very likely that different regions will be experiencing quite different economic conditions. and since we at the bank of canada have only one policy lever – our ability to control the overnight interest rate – we can focus on only one policy goal : the national inflation rate. but, we do take note of the difficulties that various sectors of the economy are experiencing, and we are well aware of the diverse issues facing different regions. to better understand concerns across the country, we have staff in regional offices – including our office in calgary – who actively seek input from businesses. one message that we have been hearing is that business widely recognizes the importance of flexibility and the need to be able to rapidly adjust to changing circumstances. that realization has certainly helped alberta to better adjust to economic upheaval and change more quickly today than it did during the 1970s and'80s. since those days, we've all learned that it does no good to try to shelter the economy from adjustments driven by global changes such as large swings in energy prices. the need for flexibility so, let me talk a bit more about flexibility. i'm going to address this from two perspectives. first, i'll give the macroeconomic view, and then i'll look at the microeconomic issues. canadian governments, both federal and provincial, are in a strong fiscal position. at the federal level, overall government debt has been reduced. alberta has successfully eliminated its debt, and other provincial governments have worked hard to balance their books. this success has given governments more flexibility to deal with cyclical shocks. more importantly, lower debt - to - gdp ratios have meant that over time, the share of government revenues that must go to servicing debt has been reduced. that frees up revenues to help governments deal with looming demographic issues without the necessity of raising taxes. at the same time, federal and provincial governments have made strides in preparing for these demographic changes, with reforms designed to ensure the long - term viability of the canada pension plan. so, from a fiscal point of view, canada is in a position that is envied by almost every other country in the world. and, as i said earlier, we at the bank of canada have kept the rate of inflation low, stable, and predictable. this has allowed business

, the experience of many countries so far suggests that this approach brings with it important economic benefits. by smoothing the peaks and valleys of the economic cycle as a whole, inflation targeting helps the economy to achieve maximum sustainable growth over the medium term. but if a central bank wants to have the monetary policy independence needed to pursue low and stable domestic inflation, then it has to be prepared to allow the external value of its currency to fluctuate. that independence, which is typically lost under a fixed exchange rate regime, has been a tremendous asset for canada. further, given the somewhat sticky nature of both wages and prices, a floating exchange rate can serve as an important economic stabilizer, helping to facilitate the adjustment to shocks and the resolution of global imbalances. it is true that under a floating exchange rate regime, currencies can experience short - term volatility. this volatility can certainly be unnerving. however, in my view, central bankers ought to be extremely cautious about trying to smooth these fluctuations. it is extraordinarily difficult to judge whether sharp currency movements simply represent market “ noise ” or more fundamental forces. so, there is great potential for policy error when central bankers try to smooth currency volatility. besides, businesses can take advantage of highly efficient hedging tools available in financial markets to help them deal with short - term currency movements. let me now turn to fiscal policy. a country should have a medium - term fiscal plan that is appropriate to its particular situation. citizens and investors need to know that their government will not let debt levels get out of hand. when public debt is controlled, people can have confidence that their governments will not inflate the debt away, impose an overly onerous tax burden in the future, or simply repudiate the debt. in attempting to keep levels of public debt under control, governments should be wary of using “ discretionary ” fiscal policy to stabilize the economy. let me be clear that i am talking here about discretionary action and not the use of automatic stabilizers, such as unemployment insurance payments. for one thing, it is very difficult to get the timing of discretionary action correct. for another, as we know from bitter experience around the world, tightening fiscal policy is politically much more difficult than easing it. and so the use of discretionary fiscal policy as an economic stabilizer increases the chances of a country getting into an unsustainable debt situation. further, the economic evidence suggests that