cannot directly measure potential output. further, the economic data that measure actual output are often revised - sometimes significantly so. the challenge for us, then, lies in estimating the size of the output gap, and there is always a significant degree of uncertainty around that estimate. so we look at a number of other economic variables to help us form an opinion about how large the output gap is. you can find out more about these variables on our web site. they include, among others, indicators of capacity in goods markets, signs of tightness in labour markets, and signals of pressures in the real estate market. some of these are quantitative, and some are qualitative, based on surveys of businesses conducted by our regional offices. another indicator is the rate of inflation itself. if core inflation - which strips out eight highly volatile components of the consumer price index - is consistently coming in above or below our expectations, it may lead us to adjust our view about the current size of the output gap. earlier, i said that when the economy is operating near its capacity, total demand for canadian goods and services - or what economists like to refer to as " aggregate demand " - is roughly in balance with total supply. total demand has two components - domestic demand and foreign demand. assessing foreign demand is difficult, but because it represents such a large share of total output in canada, we at the bank spend a great deal of time and effort trying to gauge that demand. of course, it is nothing new to say that our economy is importantly affected by events abroad. canada has always relied on international trade. for a long time now, the united states has been the focus of attention in assessing the world economy. but many of today's global economic developments have their origins outside north america, most notably in asia. before i talk about their current implications, i would like to take a few minutes to discuss the nature of these developments and their likely implications over the next decade or so. the medium - term implications of global developments just as japan and korea emerged as major players on the global stage in previous decades, china is now quickly becoming an economic powerhouse. and india is not far behind. when you consider that these two countries account for 40 per cent of the world's population, it is not hard to see why they are having such an impact on the global economy. as we look ahead, it is clear that china and india will be major global competitors, not just in labour - intensive industries, but

millions % nacca new loan volume ( left scale ) write offs, as percent of total loan portfolio ( right scale ) note : nacca is the national aboriginal capital corporations association source : national aboriginal capital corporations assocation last observation : 2021 by building trust and capacity across communities, the network has more than doubled new annual loan volumes since 2005 while keeping loss rates very low ( chart 3 ). it seems clear that the success of nacca and the afi network stems directly from how well these financial institutions know their clients. working closely to support their borrowers has helped them build strong relationships and a solid understanding of their needs and financial capacity. i am highly optimistic that the new indigenous growth fund will also perform well under nacca ’ s leadership. incomplete transmission of monetary policy despite these successes, more needs to be done to ensure that indigenous governments, households and businesses have comparable access to financial services. this is important because these barriers to financial markets have other negative effects. for example, they hinder the transmission of monetary policy to the indigenous economy. - 10 - chart 4 : policy interest rate reductions are not being fully transmitted to indigenous borrowers percentage point change percentage points - 1 - 2 - 3 - 4 - 5 2000 - 2002 2007 - 2009 bank of canada policy interest rate 2014 - 2016 prime rate 2019 - 2021 aboriginal financial institutions * note : changes are calculated from annual averages of fiscal years ending march 31. * interest earned ( as a percentage of business loans outstanding ) sources : national aboriginal capital corporations assocation and bank of canada calculations last observation : 2021 to illustrate this issue, let ’ s consider four times since 2000 when the bank cut interest rates to encourage borrowing and stimulate demand ( chart 4 ). the chart shows that for, most of these periods, interest rates paid by indigenous businesses on their loans from afis did not fall as much as either the bank of canada ’ s policy interest rate or the prime rate charged by banks to their preferred customers. this suggests that monetary policy has been less effective at stimulating the indigenous economy than other parts of the canadian economy. it is worth noting that during the most recent period of monetary policy easing in 2020 – 21, the relatively large decline in interest earned by afis reflected the impact of government policies. these policies enabled afis to reduce interest payments during the pandemic. the main reason for this incomplete transmission of monetary policy to the indigenous economy is the lack of access to financial services, primarily limited access to market - determined borrowing rates. other barriers to