broadly - based and self - sustaining, and it is important to remember that it is the level of output relative to potential that drives inflation, not the growth rate. we are in the process of developing an updated forecast for growth and inflation, and it will be published in next month ’ s monetary policy report ( mpr ). risk management despite the recent news about economic growth, the story of inflation in canada over the past few years has been dominated by downside risks. indeed, for most of the past five years, inflation has been in the bottom half of the target band. bearing in mind the long lags between economic activity and inflation, much of this low inflation has been due to slow economic growth in the past. more recently, it has also reflected temporary factors such as weakness in food and electricity prices. in fact, inflation has been surprisingly soft recently in much of the developed world, not just canada. i will have more to say about this in a few minutes. since inflation has been so consistently in the lower half of the target band, our risk - management approach to monetary policy led us to pay greater attention to forces pushing inflation down. this is because when inflation is already low, a negative shock to the outlook for inflation has more significant policy consequences than a surprise on the upside. throughout, we wanted to be sure our policy would be sufficiently stimulative to get the economy home. as the expansion continues, we will continue to manage the evolving risks to the inflation outlook. 3 / 5 bis central bankers'speeches the temporary factors that have been holding inflation down should dissipate in the months ahead, although recent exchange rate developments could affect this timing. in our july projection, we forecast that inflation would reach close to 2 per cent by the middle of next year. since that projection, the bank ’ s measures of core inflation have edged higher, as expected. we expect the downward pressure on inflation to shift to upward pressure as economic slack is used up. indeed, our models forecast a very slight overshoot of our 2 per cent target in 2019 — a product of our model ’ s dynamics. the appropriate path for interest rates in this situation is very difficult to know, because there are a number of important unknowns around the inflation outlook. these unknowns are unusual, as they are mostly the product of the unusual nature of the situation we find ourselves in — the legacy of the global financial crisis, the protracted period of slow economic growth and extremely low interest rates

, data for the past 150 years show that financial services in the us have been produced under constant returns to scale, with an annual average cost between 1. 5 % and 2 % of outstanding assets ( philippon 2015 ). bazot ( 2017 ) documents similar trends for european banks, albeit based on shorter time series. more recently, roughly since the global financial crisis, the costs of financial intermediation seem to have declined as a result of improved technology and increased competition ( philippon 2019 ). the potential of banks to realize economies of scale and scope has been a recurring theme in the empirical literature. recent research challenges the view that there are relevant economies of scale in banking. instead, the systemic risk externalities that large banks pose to financial systems may outweigh cost advantages due to size. funding cost advantages are a proxy for the implicit government subsidy accruing to systemic banks and thus the expected bailout that debt holders expect to receive ( siegert and willison 2015 ). banks ’ expectation that they will be bailed out in case of distress may affect their behavior, and particularly increase their size and complexity beyond socially optimal levels. estimates of economies of scale in banking find that the potential cost advantages are smaller than the costs to the macro - economy due to systemic risk and distorted incentives ( boyd and heitz 2016 ). once controlled for too - big - to - fail ( tbtf ) status, banks no longer benefit from economies of scale ( davies and tracey 2014 ). how digital innovations affect productivity in banking crucially depends on changes in the competitive structure of markets. as in other industries, the entry of new, more productive firms and the exit of incumbent, less productive firms, can be a channel for improvements in productivity. this process of “ creative destruction ” is, however, constrained by the fact that financial institutions which are being restructured or are eventually resolved may pose threats to financial stability. dynamics of entry and exit thus differ across banks and non - financial institutions : in the event of insolvency, liabilities of non - financial firms can be frozen, and the firm can be gradually restructured and, possibly, resolved. applying standard insolvency procedures to banks is more [UNK] because of their short - term liabilities and the risk of runs and contagion effects. one core objective of post - crisis financial sector reforms has thus been to restore normal market functioning, inter alia, by introducing restructuring and resolution regimes for systemically important banks. c