mr. thiessen discusses the challenges and prospects for the canadian economy remarks by the governor of the bank of canada, mr. gordon thiessen, to “ la chambre de commerce et d ’ industrie du quebec metropolitain ”, quebec city, quebec on 19 / 6 / 97. once a year, the bank of canada ’ s board of directors meets outside ottawa, alternating among the provinces. i am delighted that this year ’ s out - of - town meeting has brought us to the beautiful and historic city of quebec. i would like to take this opportunity to talk to you about recent developments in our economy. but first, let me take a moment to bring you up - to - date on some of the bank ’ s recent initiatives to strengthen its regional contacts. as part of this effort, we have just set up new representative offices in calgary and in halifax, and are expanding our existing offices in montreal, toronto, and vancouver. what is behind all this? we have learned from experience that both the economy and monetary policy work better when canadians are well informed about the major economic issues of the day and about the focus of monetary policy. that is why in the last few years we have been trying to increase public awareness and understanding of these matters, by regularly providing more information on the economy and explaining what monetary policy is up to and why. but to do our job well, we at the bank must also be on top of what is happening in the economy, from one end of this country to the other. we also need to listen to the views and concerns of canadians about the economy and monetary policy. the bank has always kept in touch with the regions and has monitored all the available regional economic data. what we are now aiming to improve is our ability to interpret these data. for this, we need to increase our contacts with businesses, governments, associations, economic analysts, and the public - - in all parts of canada. we expect that our new and expanded regional representative offices will help us do just that. while the central focus of the regional offices will be on the economy and monetary policy, we also expect our representatives to play a broader role in communicating with the public on all aspects of the bank ’ s responsibilities. this would include, for example, our increased efforts to ensure that canadians are aware of the anti - counterfeiting features in bank notes. public awareness is an important deterrent to counterfeiting activities. our representative offices will also oversee

, which allows people to make sounder economic decisions. and, as uncertainty about inflation diminishes, interest rates go down. in contrast, high inflation makes it difficult to interpret price changes and encourages speculative rather than productive investments - - all of which tends to increase economic inefficiency. we know from past experience that this leads only to painful boom - and - bust cycles and not to a stable economy. but what about the concern that this focus on inflation control may conflict with the achievement of full economic recovery and job creation? in fact, when the bank takes action to keep inflation inside the target range, monetary policy operates as an important stabilizer for the economy, helping to maintain sustainable growth over time in output and employment. how does this work? when the economy is expanding at an unsustainable pace, pushing hard on the limits of production capacity and threatening to send the trend of inflation through the top of the target range, the bank will tighten monetary conditions to cool things off. but the bank will also respond when the economy is sluggish, and inflation is likely to fall below the bottom of the target range, by easing monetary conditions. this is what we did from late 1995 to late 1996. now, i do not want to leave the impression that your central bank can somehow “ fine - tune ” the economy. we can ’ t, because it takes time for the effects of monetary actions to work their way through the economy. however, this approach to policy provides monetary support which, over time, will help output and employment to grow at their potential. so, by focussing on the inflation - control targets, the bank is doing the right thing for the economy. as you can see, there are good reasons why we must remain committed to our inflation - control targets. of course, the targets were introduced to help reduce a high inflation rate. but i believe that they continue to be the best basis for the conduct of monetary policy even now that inflation is low, and the aim is to keep it low. why have the benefits of low inflation been slow to emerge? with all the good news on the inflation front over the past five years, why has canada not fared better in terms of overall economic performance? i believe that this has a lot to do with the magnitude and complexity of the transformation that our economy has been going through in recent years, in response to two major challenges. first, there has been the global challenge, stemming from rapid technological advancement