of our modus operandi. the bank tries to work with markets, rather than against them, to avoid surprising them with unexpected actions. greater transparency facilitates the policy - transmission the economic council of canada had also recommended that canada adopt inflation targets in its 1990 report. economic council of canada ( 1990 ) : transition for the 90s. twenty - seventh annual review, supply and services canada, ottawa. thiessen, g ( 1998 ) : “ the canadian experience with targets for inflation control ”, the 1998 gibson lecture, queen ’ s university, kingston, ontario, 15 october. process by conditioning market expectations and helps avoid unnecessary confusion about the reasons for our actions. various techniques for manipulating domestic credit conditions and the external value of the currency by means of direct controls, moral suasion and active foreign exchange market intervention are no longer used. globalization and market liberalization have eliminated many of the barriers that used to separate different segments of the domestic financial system and have subjected them to increased international competition. as a result, these techniques became both less effective and more costly in terms of their impact on market efficiency. monetary authorities now have a clearer understanding of the limitations of alternative policy measures, as well as more sympathy for indirect, market - based solutions. monetary policy is now implemented in a more straightforward manner. today, policy adjustments are effected and signalled to the market mainly through announced changes in the bank rate and the target band for the overnight interest rate. private agents are then free to determine how these changes will be transmitted through the rest of the financial system and the economy in general. the bank simply issues a press release indicating what the new bank rate is, and this in turn anchors the short - term end of the yield curve. central bank independence and accountability have also been more clearly defined. as i explained earlier, the 1967 amendments to the bank of canada act allow the minister of finance, acting on behalf of the government, to issue a directive to the governor if serious differences arise on the conduct of monetary policy that cannot be resolved. the directive must indicate the specific policy changes that the bank is supposed to undertake. ultimate responsibility for monetary policy, therefore, rests where it should in a democratic society - with the elected government. but because of the consequences of issuing a directive, it is likely to be used only in unusual circumstances. thus, a high degree of operational independence has, nevertheless, been preserved to allow the bank to maintain its medium - term focus for monetary policy without the short - run

, m ( 1953 ) : “ the case for flexible exchange rates ”, in essays in positive economics, university of chicago press, chicago, pp 157 - 203. see, for example, “ a method of combining a free exchange rate with the present system of exchange control in canada ”, memorandum, 31 january 1949, bank of canada archives. domestic rate of inflation. canada had experienced a sharp escalation in consumer prices during the korean war, and inflationary pressures had persisted for some time after. while domestic spending had faltered in 1954, the subsequent recovery pushed inflation well above the level that the bank implicitly associated with price stability. coyne was convinced that the solution to both problems - low savings and high inflation - was a tighter monetary policy. higher interest rates would reduce domestic demand and help raise national savings. although a rudimentary money market had started to form in canada, with the active encouragement of the bank, it was not well developed. popular wisdom, in any case, suggested that traditional monetary policy mechanisms were unlikely to be effective, even when they involved tightening monetary policy. 10 as a result, coyne decided to combine reductions in the supply of bank reserves with healthy doses of moral suasion, much as his predecessor had done in earlier periods. the bank continued with this restrictive monetary policy stance through most of the late 1950s and into the early 1960s. in the face of rising unemployment and weakening economic activity, inflation dipped below 1 % by the spring of 1961. relations between the bank and the minister of finance had deteriorated sharply, and numerous government ministers had demanded a change in policy direction. however, any desire to remove james coyne and replace him with a more sympathetic governor ran up against the ambiguous nature of the legislation regarding the government ’ s powers vis - a - vis the bank. the academic community also became involved in the dispute and circulated a pamphlet entitled “ the economists versus the bank of canada ”. 11 a w phillips had just published his famous paper on unemployment and the growth of money wages in the united kingdom, and shown how higher ( wage ) inflation was typically associated with lower rates of unemployment. 12 not surprisingly, phillips ’ work found a receptive audience in canada, and researchers soon replicated his results with north american data. much of the commentary in the popular press during this period was also critical of the bank ’ s policies, and reflected the widespread view that a little more inflation was not such a bad thing - provided it could bring higher employment and stronger