do different structures affect the optimal rules for transparency and liquidity in each market? is the canadian situation unique? and what lessons can be learned from the experiences of other countries? the bank recently held a workshop on these and related topics, with input from many financial market participants. a summary of this workshop will appear in our next financial system review. market microstructure will continue to be an important area of research at the bank and, i hope, in the canadian academic community as well. payment, clearing, and settlement systems. so far, i've talked about issues related to the architecture of the financial system. but as researchers, it is also important to pay attention to the plumbing - the critical infrastructure that supports the activities of institutions and markets. so let me ask a few questions regarding payment, clearing, and settlement systems. as i mentioned, the bank of canada is responsible for the oversight of those systems that have the potential to pose systemic risk. of course, financial service providers are major participants in these systems. at the bank, one major research project involves efforts to model payment, clearing, and settlement systems so as to better understand how they work. further research into the best oversight processes for these systems is also a priority. while the bank's objective is to see that risks are minimized, we need to do so in ways that do not unduly inhibit the development of even more efficient systems. do any current practices create unnecessary inefficiencies? what issues are raised by the current drive towards straight - through processing? how can cross - border clearing and settlement be improved, particularly where the ownership of securities and the posting of collateral are involved? conclusion as you can see, there are still many questions that need to be answered. there are still gaps in our knowledge, and the need to fill these gaps is pressing. you, as academics and researchers, can do your part so that policy - makers, supervisors, and institutions are all better informed and more productive. as i said earlier, canada's economic health depends on a strong financial services sector. so your work is crucial, not just for the bank of canada, but for all canadians. i hope that i have been able to convince you that there are many research topics that are not only inherently interesting for academics, but relevant for public policy. i look forward to you filling the gaps in our knowledge.

reason is that the cpi is the measure of inflation most familiar and relevant to canadians. choosing a well - known indicator as a target makes it easier to explain our actions and to be accountable. second, why do we have a range? this is because there are some components of the cpi - such as some energy and food items - whose prices tend to move a lot, both up and down. these movements can cause large fluctuations in the index. if we tried to target inflation too precisely, we would then be adjusting our policy interest rate sharply and frequently, which would lead to greater instability in the economy. having a range reflects the inherent volatility of the cpi. but to be clear, the range is not a zone of indifference - we do aim to achieve the 2 per cent target. another concern is that this volatility can obscure the underlying trend of inflation. so for operational purposes, we use a measure of core inflation. this measure strips out eight of the most volatile components of the cpi and the effect of changes in indirect taxes on the rest of the items. in this way, core inflation provides a better forward - looking indicator of the trend of inflation. finally, since today's monetary policy actions only affect future inflation, we needed to choose a time frame in which to achieve our target. from the beginning, we said that if inflation was pushed off target, we would conduct monetary policy so as to return inflation to target over a period of 18 to 24 months. this is because research has suggested that historically it takes 12 to 18 months for changes in interest rates to have most of their impact on output, and 18 to 24 months to have most of their impact on prices. of course, there is always uncertainty about the lags involved, and i'll have more to say about this later on. before i move on, i want to emphasize three points about our inflation - targeting framework. the first is that we operate in a symmetric way, and we make it clear to everyone that we do so. by this, i mean that we worry just as much about inflation falling below target as we do about it rising above target. when the demand for goods and services pushes the canadian economy against the limits of its capacity, and inflation is poised to rise above target, the bank will raise interest rates to cool off the economy. and when the economy is operating below its production capacity, and inflation is poised to fall below target, the bank will lower interest rates to stimulate growth