have indeed been intuitive and simple. they have had a tremendous impact on policy. i guess that most of you are familiar with many of the key insights. on the relevance of price stability ; on the costs of inflation ; on the inability of monetary policy to raise the structural growth rate of the economy ; on the importance of central bank independence from political influence. the point here is that these essentially simple insights were distilled from a huge and often very complicated body of research. i am thinking here about contributions in the 1960s and 1970s on the shape of the phillips curve, research on time inconsistency that emerged from the late 1970s onwards, research on central bank independence in the 1980s and 1990s, and recent discussions on central bank accountability and communication. perhaps current researchers can take comfort in the fact that one day the outcomes of current scientific debates may also become glaringly obvious. but in the meantime we need to struggle on before science reveals the answer to us. conclusion let me conclude with a forward looking perspective. it seems obvious that globalisation and financial innovations will continue, so that complexity in the economic and financial system will continue to increase. take the financial turmoil of the past year, to which i referred already. obviously there is a need to tailor our policies, for example financial supervision and monetary policy, to the dynamics that we have witnessed in the financial sector. but in order to do so we need a thorough understanding of what is going on. with a more complex and dynamic financial system, our demand for high quality analysis and research can only increase. at the same time, while demands are increasing, resources are under pressure. the efficiency operations of the current government that apply to the ministries and the cpb also apply to dnb. while i fully support the need for an efficient government and an efficient central bank, i also see a risk that knowledge - intensive functions could be under disproportionate pressure. a key characteristic of research is that it requires relatively long time horizons, and that its pay - off emerges in the medium rather than in the short run. as a result, it can easily be crowded out by the many policy issues that continue to require immediate attention. the challenge is to protect key research areas from such pressures, and to maintain the human capital base in our institutions. the need for research will always remain, whether policy makers immediately like the answers or not. for each question that we answer, new ones arise. i truly believe that the interaction between science and policy

david dodge : brief overview of the canadian economy opening statement by mr david dodge, governor of the bank of canada, to the standing senate committee on banking, trade and commerce, ottawa, 2 may 2007. * * * good afternoon, mr. chairman and committee members. we appreciate the opportunity to meet with your committee, which we usually do twice a year, following the release of our monetary policy report. we believe that these meetings help us to keep members of the senate and, through you, all canadians, informed of the bank's views on the economy and about the objective of monetary policy and the actions we take to achieve it. when paul and i appeared before your committee last october, we noted then that the outlook for growth in the canadian economy had been revised down slightly from earlier expectations. in our latest monetary policy report, which we released last thursday, we noted that canada's economic growth did indeed slow, but recently, inflation has been higher than expected. after considering the full range of indicators, the bank now judges that the canadian economy was operating just above its production capacity in the first quarter of this year. we expect that, over the projection horizon, domestic demand will continue to be the main driver of growth in canada. with the u. s. slowdown now expected to be somewhat more prolonged than previously projected, net exports should exert a slightly greater drag on canada's growth in 2007. the canadian economy is now projected to grow by 2. 2 per cent in 2007 and 2. 7 per cent in both 2008 and 2009. this would return the economy to its production capacity in the second half of 2007 and keep it there through 2008 and 2009. core inflation should remain slightly above 2 per cent over the coming months, given pressures on capacity and the impact of higher core food prices. but with the economy projected to return to its production capacity in the second half of this year and with further easing of pressures from housing prices, upward pressure on core inflation is expected to moderate, bringing the core inflation rate back to 2 per cent by the end of 2007. total cpi inflation is projected to rise above the 2 per cent inflation target in the second half of this year, peaking below 3 per cent near the end of 2007 before returning to the target by mid - 2008. we at the bank continue to judge that the risks to our inflation projection are roughly balanced, although there is now a slight tilt to the upside. last tuesday, the bank left its key policy rate unchanged