toronto, ontario, december 12, 2011 ). 4 specifically, none of these countries saw a large drop in house prices during the crisis. in addition, in all three economies the usual financing channels continued to work ; government support encouraged further lending ; and as house prices rose following the crisis, debt levels did too. 5 public debt has also been on the rise in some emerging - market economies. as of august 2018, more than 45 per cent of low - income countries were at high risk of, or already in, debt distress as measured by the international monetary fund ( imf ) ’ s debt - sustainability ratings. see the imf ’ s global financial stability report ( october 2018 ). 6 according to the imf, about 25 percentage points of this debt is incurred by local government financing vehicles. 7 for more detail, see j. bowman, m. hack and m. waring, “ non - bank financing in china, ” reserve bank of australia bulletin ( march 2018 ). 8 an example of this exchange rate risk is when the us dollar rises because of normalization of monetary policy by the us federal reserve. 9 leveraged loans are loans provided to highly indebted non - financial corporates. non - bank institutional investors typically invest in these loans, including through collateralized loan obligations. 10 see the fsb ’ s global monitoring report on non - bank financial intermediation 2018 ( february 2019 ). 11 liquidity and maturity transformation are key vulnerabilities that could lead to runs by investors in the absence of prudential regulation. see b. y. chang, m. januska, g. kumar and a. usche, “ monitoring shadow banking in canada : a hybrid approach, ” bank of canada financial system review ( december 2016 ) : 23 – 37. 12 for more detail, see osfi ’ s december announcement. 13 see t. duprey, x. liu, c. macdonald, m. van oordt, s. priazhkina, x. shen and j. slive, “ modelling the macrofinancial effects of a house price correction in canada, ” bank of canada staff analytical note no. 2018 – 36 ( november 2018 ). 14 see o. blanchard, “ public debt and low interest rates ” ( aea presidential lecture, january 2019 ). 15 see s. s. poloz, “ toward 2021 : the power — and limitations — of policy ” ( remarks to the chamber

must always be ready to consider questions that challenge our old answers. how do we do that? by giving innovative thinking a central place in our strategic plan and by creating a corporate culture that fosters different perspectives and challenges the status quo. as former governor david dodge once said to bank staff, “ we can have clashes of ideas secure in the knowledge that there are no winners or losers … what we ’ re doing is exploring all aspects of an issue. ” 5 focusing on critical central bank issues let me turn to what ’ s in our plan. the bank of canada remains committed to inflation targeting and to the expert execution of all of its responsibilities. the bank is also committed to exploring how best to contribute to the canadian economy in a world that is going through fundamental structural change. it ’ s in this context that the bank is seeking to advance the frontiers along all its business lines. let me focus on monetary policy. the current inflation - targeting framework is working well, so the bar for change is high. but history tells us we can ’ t cling indefinitely to a particular way of doing business. one important challenge for central banks now is that conventional monetary policy is stretched to its limits in some countries, where policy interest rates are at, or below, zero. because of this, a number of countries are using innovative monetary policy measures to return inflation to target. canada was fortunate to avoid the worst of the crisis, thanks to the relative strength of our economy, our prudently managed and resilient financial system, and well - anchored inflation expectations. tiff macklem, my predecessor and your dean, can take a lot of credit for that. it ’ s not surprising that we are focusing our research firepower on the monetary policy lessons from the crisis. the first lesson is that we have to be innovative with the instruments we have in our monetary policy toolbox. structural changes have reduced the economy ’ s potential to grow without creating inflation, so the neutral rate of interest is lower than it was before the crisis. 6 that means that, if we continue to target a 2 per cent inflation rate, it ’ s more likely that policy interest rates will fall to zero than in the past. remember, only a few years ago, many believed zero was where monetary policy was out of bullets. we now observe that some european countries have tested this limit. there, central banks are charging commercial banks for their deposits, and governments are effectively getting paid to borrow. we published today an interesting staff