. i will then discuss two state - of - the - art quantitative models that we have developed to improve our assessment of risks to the canadian financial system. the multiple dimensions of systemic risk systemic, or system - wide, risk goes beyond individual institutions and markets. it is the risk that the financial system as a whole becomes impaired and that the provision of key financial services breaks down, with potentially serious consequences for the real economy. bank of canada annual conference on “ the evolving financial system and public policy ” held in december 2003 in ottawa. bis central bankers ’ speeches systemic risk manifests itself in different ways. there is a time dimension, which refers to the accumulation of imbalances over time, and a cross - sectional dimension, which refers to how risk is distributed throughout the financial system at a given point in time. procyclicality is the key issue in the time dimension. it reflects the tendency to take on excessive risk during economic upswings – too much punch from the punchbowl, if you will – and to become overly risk averse during the downturns. procyclicality makes the financial system and the economy more vulnerable to shocks, and increases the likelihood of financial distress. risk concentrations and interconnections are the key issues in the cross - sectional dimension. financial institutions can have similar exposures to shocks or be linked through balance sheets. as a result, losses in one institution can lead to fears of contagion that amplify the adverse effects of the initial shock. for instance, uncertainty about the viability of counterparties can lead to hoarding of liquidity, which may seem like an appropriate action for the individual institution but can have disastrous consequences for the financial system as a whole. system - wide surveillance requires that we regularly assess the importance of various types of systemic risk. how we judge a particular risk will be based on the probability that it will lead to financial system distress, and on the extent of its impact should that distress materialize. early - warning indicators a fundamental challenge is to detect the risks arising from both global and domestic sources in an environment with a vast number of potential indicators. therefore, one direction of research at the bank has been to isolate the key signals from this broad information set by identifying a smaller group of variables that can serve as early - warning indicators of emerging imbalances. since financial crises in canada have been rare, international data are used to help establish numerical thresholds for each domestic indicator. for example

mr thiessen discusses accountability and transparency in canada ’ s monetary policy and assesses recent economic developments remarks by mr gordon thiessen, governor of the bank of canada, to the metropolitan halifax chamber of commerce, halifax, nova scotia, on 27 january 2000. * * * accountability and transparency in canada ’ s monetary policy public sector institutions have been undergoing significant changes over the past decade. one of the most important changes has been the move to greater accountability. public institutions are now required to be more open and to provide more information about their operations. or, to use the word currently in vogue, to be more “ transparent. ” nowhere has this move towards greater transparency been more dramatic than among central banks in the major industrial countries. traditionally, central banks had been rather closed, almost mysterious, institutions. this reflected the view that financial markets needed to be “ surprised ” if monetary policy was to have a significant effect. in recent years, the philosophy behind monetary policy in canada, and in most major countries, has been moving in the other direction. not only does this reflect the need for accountability, but also the fact that central banks have come to appreciate that transparency can actually lead to better policy outcomes. today, i would like to tell you about some of the steps we have taken to increase transparency in the conduct of canadian monetary policy. in keeping with this theme, i will also take this opportunity to bring you up to date with the bank ’ s view of recent economic developments at home and abroad and tell you how the outlook shapes up. i will also discuss what monetary policy is doing to keep the current economic expansion in canada on a sustainable course. accountability and transparency in monetary policy i would suggest that what is absolutely crucial for the accountability and transparency of public institutions is clear objectives. this is certainly true for monetary policy. in canada, a major step towards greater openness was the adoption in 1991 of specific targets for inflation reduction. inflation was quickly brought down and, since 1994, the objective has been to keep it low and stable - within a range of 1 % to 3 %. this explicit target is a precise yardstick for measuring the bank ’ s success or failure and, thus, provides the basis for our accountability to the public. but as i have said many times in the past, low inflation is not an end in itself. we focus on low inflation because it contributes to a more productive, stable, and prosperous economy. so ultimately, our accountability must be seen in terms of inflation