policy in relation to the zlb. specifically, ben mccallum ’ s paper examined the use of the exchange rate as an additional instrument for monetary policy in the context of a model where a “ portfolio balance ” channel allowed for deviations from uncovered interest parity. 7 in my paper with dave reifschneider, we explored the effects of the zlb on the macro economy and evaluated alternative monetary policy strategies, including versions of average - inflation and price - level targeting. 8 to his credit, marvin goodfriend went outside the box and considered three avenues to overcome the zlb : charging negative interest rates on reserves and cash ; conducting largescale purchases of long - term securities to reduce the external finance premium ; and outright monetary transfers to the public. 9 what is striking rereading these papers today is how all authors took for granted that the zlb was a real problem that needed addressing, and how they approached it in novel and different ways. this despite the fact that the economy was in the midst of a productivity - driven boom, the longest expansion on record, and the prevailing federal funds rate was 5. 25 percent. these papers and the ensuing discussions and debates planted seeds that would germinate in research and policymaking. central banks across the globe ultimately used variations of nearly all of the tools discussed at the conference. indeed, the topics of interest rate policies, targeting asset prices, asset purchases, and negative interest rates are among the most prominent discussions in monetary economics today. importantly, this research made its way straight to policymakers within a few years — a quick turnaround by central bank standards! in january 2002, marvin, dave, and i reprised our roles from the conference in briefings to the fomc. 10 and in june 2003, vince reinhart briefed the fomc on alternative monetary policy approaches — including asset purchases and forward guidance — to mitigate the effects of the zlb. 11 this was followed by a flurry of further research by academics and central bank economists that delved deeper into these topics. 12 putting research into practice this research had important practical lessons for policymakers in the united states and abroad following the global financial crisis. one lesson was that short - term rates should be cut 2 / 4 bis central bankers'speeches aggressively when deflation or a severe downturn threatens. 13 that is, do not “ keep your powder dry. ” a second lesson is that short - term rates should be kept “ lower for longer ”

david dodge : economic and financial trends in canada opening statement by mr david dodge, governor of the bank of canada, at a press conference following the release of the monetary policy report, ottawa, 22 october 2003. * * * today, we released our october monetary policy report. the report reviews economic and financial trends in the context of canadaa€™s inflation - control strategy. since our april report, the canadian economy has been hit by a number of unusual shocks : sars, bse, the ontario electricity blackout, and the severe forest fires in british columbia. inflation has also fallen faster and further than expected. this drop in core inflation reflected several unforeseen developments. these included a broad - based weakness in the prices of goods, substantial reductions in the prices of tourism - related services because of sars, and a slightly faster easing of pressures from auto insurance premiums. the substantial fall in the value of the u. s. dollar added to the weakness in goods prices. we now estimate that there is more slack in the economy than was projected in april. the prospects for near - term growth in the global economy have improved since april, and geopolitical uncertainty has continued to decrease. the near - term outlook for the u. s. economy is much improved. the economy in the euro area is still weak, but prospects for asia look bright, led by china and india. the japanese economy is performing better than anticipated. we expect growth in the canadian economy to strengthen during the fourth quarter and through 2004. on balance, the expansion should be above the rate of potential growth, relying primarily on solid household spending and increased business investment. stronger growth abroad should boost foreign demand for canadian products, but this will be dampened by the higher value of the canadian dollar. growth is expected to average a little over 3 per cent in the second half of 2003 and 3 1 / 4 per cent in 2004. with growth above potential, the slack in the economy should be absorbed by early 2005. we expect core inflation to average just over 1. 5 per cent for the rest of 2003, and to fall to just above 1 per cent in early 2004, as the effects of earlier increases in auto insurance premiums dissipate. core inflation should return to 2 per cent by mid - 2005, as economic slack is taken up. total cpi inflation will continue to be importantly affected by swings in the price of crude oil. if prices ease to us $ 27 per barrel next year, total