close monitoring is nevertheless required to help ensure that this cautionary tale does not become a reality. conclusion the global economy and the experiences of other countries provide a sort of natural experiment through which we can better assess economic developments in canada. in many cases, the economic cycles of other countries are either moving in step with ours or have preceded them. often, this will be because events elsewhere are shaping events in canada ; at other times it may be mere happenstance or the result of some more general force hitting us and others in a synchronous manner. an international perspective can provide both understanding and policy insights. while it is important to interpret with caution what you see through the international lens, we have seen how it can help us resolve domestic economic puzzles and guide policy. with regard to inflation, fixed investment, exports and the household sector, it has also pointed the way to more positive outcomes and supported the base - case projections of the bank. the international perspective deepens our understanding of how the canadian economy works and gives us greater confidence in how our policy actions influence the ultimate outcomes. economic developments in canada are not predetermined by events outside our borders. domestic factors are important and we are ultimately the masters of our own destiny. the international perspective simply allows us to conduct our affairs in a more informed way, and improves the odds of a favourable outcome. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches

same time and even more dramatically than the fall - off in canadian trade ( chart 12 ). perhaps the weakness in canadian exports has a common cause and we should be thankful for what we have. in this case, however, any race to judgment based on coincident timing could be misleading. most of the reasons put forward for the collapse in global trade, such as constraints on the availability of trade financing and exceptionally weak economic activity in europe, have little direct relevance for canada. 7 an alternative explanation has been put forward, however, that also has a foreign origin and holds a little more promise. it relates to the fiscal cliff in the united states and the significant budget consolidation that has been underway there in the past two years. although one might assume that the demand for canadian exports from u. s. governments ( federal, state and local ) would be minimal, preliminary evidence suggests that approximately 12 per cent of our non - commodity exports over the 1997 to 2012 period went to the u. s. government sector. moreover, a modified version of the bank ’ s foreign activity measure, which gives greater recognition to u. s government purchases, seems to improve our ability to capture the weakness in exports over the last two years. however, its explanatory power over the previous three years is not nearly as good. work is ongoing, therefore, with a view to developing alternative measures of foreign activity which might perform better over the entire period. this provides a useful example of how the international perspective has the potential to mislead as well as inform. one possible connection proved to be a dead - end, while the other points to a possible answer. correlation does not necessarily imply causation, but it helps us to flag events that might warrant further investigation. high household debt and housing sector activity household debt and activity in the canadian housing sector have also attracted considerable attention in the past few years. unlike the three earlier examples – inflation, investment and exports – high household debt and housing sector activity do not necessarily represent a puzzle. however, they have reached historic highs and have been stronger and more resilient than many economists had expected. household debt and housing sector activity are not only exceedingly elevated relative to past experience in canada, they have also approached levels where real estate busts were observed in other countries. charts 13 and 14 provide some international comparisons for two series that have attracted particular attention from international organizations ( as well as the economist magazine ). the foreign activity measure is a trade - weighted index