personal income tax deducted by the employer. others, such as employment insurance payments and social assistance payments, work with a fairly short lag. these types of fiscal stabilizers are very effective in dampening an output cycle. but they do not come close to fully offsetting the change in output. other elements of the automatic fiscal stabilizers do not take hold until income tax is settled in the spring of each year. the lags in the effects of monetary policy mean that there is no contemporaneous dampening effect on output. while changes in monetary policy can have some impact in the very short run, the full impact on output is not normally felt for 12 to 18 months. it is largely because of these lags that the bank aims to bring inflation back on target over an 18 - to 24 - month horizon. as i noted earlier, the automatic fiscal stabilizers at the federal level will no longer have to be offset. what difference does that make for monetary policy? the most important factor is that fiscal policy will be more symmetric and predictable. discretionary stabilization policy while the automatic stabilization provided by monetary and fiscal policies is very desirable, the question remains whether there is a role for something further — a role for a discretionary stabilization policy. in the case of monetary policy, the nature of our response is the more or less automatic one described earlier. as i said earlier, judgment is key to the process. that is particularly true at times of great uncertainty, as existed last autumn. but our clear inflation target means that, in principle, our discretion is limited relative to that of fiscal policy. the arguments for and against discretionary fiscal policy as an important element in macroeconomic stabilization in an open economy tend to revolve primarily around lags, and around the effectiveness of short - run fiscal policy relative to monetary policy. if the timing was close to perfect, fiscal policy measures that lasted for two or three quarters could, in principle, and under ideal circumstances, shorten the time to move output back to its desired level. thus, in principle, discretionary fiscal policy is an important tool. but, as a practitioner, i can tell you that the great problem here is that temporary measures are both difficult to start quickly when the need arises and extraordinarily difficult to stop once the need is past. thus, as a practical matter, not a philosophical one, there are some severe limitations to the use of discretionary fiscal policy as a stabilizer. policy co - operation

, residential mortgage credit and monetary policy, ” bank of canada, december 2004 ( available at : http : / / www. bankofcanada. ca / en / conference _ papers / housing _ macroeconomy / roi. pdf ) ; and j. campbell and j. f. cocco, “ how do house prices affect consumption? evidence from micro data, ” ( harvard institute of economic research working papers no. 2045, 2004 ) see l. pichette, “ are wealth effects important for canada? ” bank of canada review ( ottawa, bank of canada, spring 2004 ). available at : http : / / www. bankofcanada. ca / en / review / spring04 / r04 - 2 - ec. html part of the increase may also reflect the general aging of the population. microdata indicate that from 1999 to 2009, the share of home equity lines of credit ( helocs ) held by households in the 50 - plus age group increased from 33 per cent to 54 per cent. bis central bankers ’ speeches household finances and financial stability household finances also have important implications for financial stability. while the rapid expansion of household credit during the recession and the early stages of the recovery is in part a testament to the resilience of canada ’ s financial system, it is also a source of risk. as discussed in the bank ’ s most recent financial system review, the proportion of households with stretched financial positions that leave them vulnerable to an adverse shock has grown significantly in recent years. at an aggregate level, the risk is that a shock to economic conditions could be transmitted to the broader financial system through a weakening in the credit quality of loans to households. this could prompt a tightening of credit conditions and, in turn, set off a mutually reinforcing deterioration of real activity and financial stability. there are welcome signs of moderation in the pace of debt accumulation, but credit continues to grow faster than income. without a significant change in behaviour, the proportion of households that would be susceptible to serious financial stress from negative income or wealth shocks will continue to grow. to better assess the risks associated with growing household indebtedness, the bank regularly undertakes stress tests. in the december financial system review, we conducted a partial stress - testing simulation to estimate the impact on household balance sheets of a hypothetical 3 - percentage - point increase in the unemployment rate. the results suggest that the associated rise in financial stress among households would double the proportion