demonstrated that rating - agency judgments were not always reliable. consequently, market participants are now relying more on their own credit analysis, thereby increasing the costs for investing in structured products considerably. it will take some time for rating agencies to re - establish their credibility. second, investors have discovered that there are considerable costs of accumulating independent information on non - standardized products in order to perform, at a minimum, risk - based analysis to check the opinions of credit - rating agencies. this is a case where markets themselves should be able to establish standards to minimize information costs. in the interim, the central bank or a regulatory body may help to reduce the costs of information. the bank of canada has adopted high disclosure standards for abcp that it will accept as collateral in its standing liquidity facility. this may encourage market participants to raise their own standards. whether they do in the end will be their decision. third, recent problems raised concerns over the health of counterparties – initially tied to uncertainty about exposure to u. s. subprime mortgages and later to structured products in general. these concerns, while material, should prove temporary before being resolved by time and disclosure. this is why it is so important to implement immediately the best practices for disclosure endorsed last month by the g - 7 finance ministers and central bank governors. this is a priority in canada. a central bank can supply liquidity to financial institutions and markets. however, it cannot create markets where there is no private desire for them, nor can it change the fundamental value of a security. thus, when confronted with a market failure, a central bank should identify the basic nature of the failure and act when it judges that a shock has distorted the liquidity - risk premium embedded in the price of a security. the most important potential cost of intervention is moral hazard – the risk that central bank actions might ratify or encourage behaviours that would increase the likelihood or severity of a future crisis. in today's circumstances, one might worry that market participants could alter their behaviour owing to a mistaken belief that central banks would never allow any counterparty to fail. another concern is that in the future, banks would worry less about market liquidity and assume that central banks would always act to provide liquidity in any or all markets, even in cases of a very minor disruption. there could also be costs related to the arrow - debreu theorem of complete markets states that there is a competitive equilibrium of prices so that aggregate supplies will equal aggregate demands

recent evidence, ” discussion paper no. 2015 – 9, bank of canada, 2015. t. lane, “ drilling down – understanding oil prices and their economic impact ” ( speech to the madison international trade association ( mita ), madison, wisconsin, 13 january 2015 ). bis central bankers ’ speeches although we believe that ’ s the right decision at the present time, it would not always be the right call. there are times, as in the 1970s, when exchange rate movements are part of a broader inflationary process. in such cases, looking through the pass - through could put us on a treadmill of accommodating higher inflation. moreover, identifying pass - through depends on a combination of estimation and judgment. for that reason, we issue our estimate of the underlying trend in inflation as our own judgment in the current policy context, rather than as an alternative measure of core inflation. expectations expectations of inflation, which are based on actual inflation as well as the credibility of our target, also play a central role in the conduct of monetary policy. many economic decisions depend on expectations of future inflation. for businesses, inflation expectations influence their stance in wage negotiations and price setting, as well as in assessing rates of return for decisions on production, hiring and investing in productive capacity. for households, expectations have an impact on savings decisions as well as on their choice of alternative savings vehicles. 9 through their influence on all of these decisions, expectations tend to become self - fulfilling. it would be much more challenging to keep inflation on target if expectations were to become unanchored – or anchored at a lower or higher level. for these reasons, we keep a close eye on expected inflation. we measure business expectations with our own quarterly business outlook survey and recently began tracking household expectations with a quarterly online poll of 1, 000 canadian consumers. the poll measures both the inflation expectations of participants over various time horizons and the uncertainty surrounding those expectations. it also covers a wide array of other economic expectations that will inform the bank, and canadians in general, on issues ranging from labour market prospects to personal finances. conclusion let me wrap up. our inflation - targeting framework has stood the test of time. it has proved vastly superior to any other policy alternatives that have been tried. our periodic renewals are important opportunities to make sure it continues to serve its purpose and to suggest improvements. i have focused on one set of improvements that we are considering : how we assess the underlying trend in inflation, separating it from price movements