timothy lane : are we there yet? the united states and canada after the global financial crisis remarks by mr timothy lane, deputy governor of the bank of canada, at carleton university, ottawa, ontario, 24 september 2014. * * * introduction it is a pleasure to be here at carleton university. it has been a long time since i was a student here, but i still get caught up in the back - toschool feeling of september. it ’ s a time of fresh starts and renewed energy. today i would like to talk about the economies of the united states and canada and how our economic ties are evolving as the recovery from the financial crisis of 2008 – 09 continues. i will discuss the impact on canada of the federal reserve ’ s unconventional monetary policies, and how canada will be affected as these policies are gradually brought back to normal. while there are risks associated with this process, the bank of canada sees it as a positive sign that the u. s. economy is experiencing its own fresh start and gaining renewed energy. ties that bind... sort of let me start with the ties between the united states and canada. we are more than neighbours ; perhaps we are more like fourth - year roommates. economically, we need each other and have strong links. over the years, we ’ ve been through good times and bad. we live comfortably together, provided that we respect each other ’ s space. on the whole, having our fortunes linked with those of the united states works in canada ’ s favour. our businesses can take advantage of the opportunities of a much larger market. that means more jobs in canada. but, over the past several years, we have also been reminded that these strong ties expose us to adverse forces in times of stress. the old cliche is that “ when the u. s. sneezes, canada catches a cold. ” there is an element of truth to that adage, but it only goes so far. our economies do not move perfectly in sync, partly because they are structurally different : most obviously, ours is much more reliant on natural resources. and despite the strong influence of the united states, as economic policy - makers in canada, we have plenty of scope to follow a different path. to explore these ties – particularly as they relate to my own field, monetary policy – let ’ s take a closer look at the financial crisis of 2008 – 09, the subsequent worldwide recession and the bumpy recovery. first, i ’

ll talk briefly about how canada ’ s experience through that period has been similar to, yet different from, that of the united states. then i ’ ll elaborate on where we are now, the challenges facing policy - makers in the united states, and what they mean for canada. tales of a global recession the financial crisis, which started with an overheated and precariously financed u. s. housing market, did not just affect canada – it triggered a worldwide recession. in 2008, the dramatic failure of lehman brothers was effective, if nothing else, in concentrating minds : the world looked into the abyss and took notice. in a historic display of consensus, the g - 7 agreed to take whatever steps were required to stem the crisis. they lowered policy interest rates sharply ( chart 1 ) and in a coordinated bis central bankers ’ speeches manner ; they flooded the financial system with liquidity to quell the panic ; and they stood behind systemically important financial institutions. these aggressive and coordinated policy actions prevented a financial and economic collapse that could have rivalled the great depression. nonetheless, they did not prevent a severe and protracted global recession, which led to a period of weak and uneven global growth that continues to the present day. through the crisis and beyond, the federal reserve acted aggressively and unconventionally – first to stem the crisis and, later on, to support the recovery. like other central banks, the fed began by boldly lowering its standard monetary policy instrument, the federal funds rate, as low as it could go. with policy interest rates at their lower bound, the federal reserve also went to unusual lengths in providing forward guidance – communicating how long those rates would be likely to stay at their current level and, more recently, the factors that they would take into account in deciding when to start raising them. the fed also innovated by introducing large - scale asset purchases ( lsaps ), best known as quantitative easing, or qe. qe provides an injection of liquidity into a stalled economy through the central bank ’ s purchases of financial assets such as government bonds and mortgage - backed securities. these operations have had pervasive effects on financial markets – not only in the united states but globally. they work through a variety of channels, including by pushing down long - term interest rates and the external value of the u. s. dollar and pushing up the prices of risky financial assets such as equities ( chart 2 ). bis central bankers ’ speeches as a