, mortgage rates shifted into a lower range in the late 1990s. in part, this reflected a global trend toward lower inflation and interest rates. but it also reflected the fact that the bank of canada had built some credibility around its inflation - targeting policy, which began in 1991. canadians had come to expect that inflation would remain low, and interest rates moved lower accordingly. this is when our long - term rise in household debt took root. the situation took another dramatic turn in the wake of the global financial crisis in 2008. central banks slashed interest rates, in some cases to zero and beyond, and kept them at historically low levels for an extended period. internationally coordinated fiscal and monetary actions from 2008 to 2010 provided stimulus and helped the world avoid a second great depression. but our economy has struggled to gain traction in the last 10 years, not least because our recovery was interrupted by the collapse in oil prices in late 2014. today, inflation is on target and the economy is operating very close to potential. however, given the lingering effects of the shocks we have faced, the economy still requires stimulus. let me make a very basic and important point here. policy stimulus has a cost, whatever form it takes. whether delivered by monetary or fiscal policies, stimulus encourages growth by bringing forward household spending and business investment, financed with debt. i spoke about these debt dynamics in the purvis lecture two years ago. if fiscal policy takes the lead in stimulating the economy, this can result in a buildup of government debt. if monetary policy takes the lead, this brings about a buildup in household debt. in both cases, stimulus leads to a buildup of debt over time, whether public or private. and excessive debt levels create a vulnerability, making the economy less resilient to future shocks. this is why policy - makers need to consider the debt consequences of the mix of fiscal and monetary policy. 2 / 5 bis central bankers'speeches the burden of debt ultimately, what matters most is the burden of servicing debt relative to income. in other words, the lower the interest rate, the more debt a given household can afford to carry. for this analysis, we look at the debt - service ratio, which is the required payments of interest and principal expressed as a percentage of income. remarkably, the aggregate debt - service ratio on mortgages for canadian households has been very stable, remaining within a range of 5 to 7 per cent since the early 1990s. what this means is that canadians have taken advantage of lower

around 170 per cent of disposable income. in other words, the average canadian owes about $ 1. 70 for every dollar of income he or she earns per year, after taxes. that ratio is a canadian record, and up from about 100 per cent 20 years ago. although this ratio is on the high side, other economies such as sweden, norway and australia have even more household debt relative to disposable income. this international comparison reveals some common factors. like canada, the countries i just mentioned have all seen decades of steadily rising house prices. they all have high rates of homeownership and deep, well - developed mortgage markets. like canada, mortgages in australia are typically amortized over 25 to 30 years. in norway and sweden, you can find 1 / 5 bis central bankers'speeches mortgages where the homeowner is only making interest payments, and the principal is passed on from one generation to the next. aspiring to own a home is part of our culture. it is also a way to build wealth for the future, as house prices have tended to rise faster than incomes. my colleague, deputy governor larry schembri, took an in - depth look at the drivers of house prices in a speech in 2015. he found many factors working on both supply and demand to push prices up. on the supply side, canada is a highly urbanized country, and many of our cities have land - use constraints that limit supply, such as green belts and other zoning restrictions. geography, in the form of mountains and water, also helps to limit supply and support prices. in terms of demand, several factors have reinforced an extended trend toward higher prices. these include demographics and a long period of low long - term interest rates. but the point i want to stress here is that when you combine a strong desire for homeownership with rising house prices, you will naturally find increasing levels of debt. monetary policy, demand and house prices the connection between low interest rates, rising house prices and increasing debt levels is worth considering in more detail. the goal of our monetary policy is to deliver low and predictable inflation by keeping supply and demand in the economy in balance. if inflation is too low, we can lower our key policy interest rate and expect to stimulate demand for goods and services. when we raise interest rates, we expect to cool demand. you would expect, then, that relatively low interest rates would lead to strong demand for housing. looking back