are so many factors that could also cause the follow - up problems observed and it is so difficult to control for all of them. criteria that have been used in the literature to identify contagion include : 4 ( i ) the transmission is in excess of what can be explained by economic fundamentals ; 5 ( ii ) the transmission is different from regular adjustments observed in tranquil times ; 6 ( iii ) the events constituting contagion are negative extremes ; 7 and ( iv ) the transmission is sequential, for example in a causal sense. but there is no agreement about which ones of these four criteria are necessary or sufficient to characterise a contagion event. against this background, ecb staff has developed and is using a series of start - of - the - art analytical tools to assess contagion risks. but these tools often face the same identification problem as the previous literature. nevertheless, policy makers should act to stem pure contagion risks if data or analytical tools show sizeable spillover risks and there is no convincing evidence that this is caused primarily by economic fundamentals or common shocks. coase, “ the problem of social cost ”, journal of law and economics, 1960. for example, chen, “ banking panics : the role of the first - come, first - served rule and information externalities, journal of political economy, 1999, develops a model in which the presence of aggregate shocks makes bank contagion more likely. see hartmann, straetmans and de vries, “ banking system stability : a cross - atlantic perspective ”, carey and stulz ( eds. ), the risks of financial institutions, nber and chicago university press, 2006. for a broader survey of the contagion literature and discussions of particular channels through which financial contagion emerges, see de bandt and hartmann, “ systemic risk : a survey ”, ecb working paper series, no. 35, november 2000 ; pritsker,'' the channels for financial contagion,'' claessens and forbes ( eds. ), international financial contagion, kluwer academic publishers, 2001 ; ecb, “ financial market contagion ”, financial stability review, december 2005 ; or ecb, “ the concept of systemic risk ”, financial stability review, december 2009. see eichengreen, rose and wyplosz, “ contagious currency crises : first tests ”, scandinavian journal of economics

the ratio of public debt to gdp on a steady downward track. this was a difficult hurdle to overcome, and the fiscal consolidation of the 1990s was painful. now, here ’ s the good news. since that time, the vicious circle of rising deficits and debt has become a virtuous circle of balanced budgets and falling debt. reducing, and ultimately eliminating, the deficit in the 1990s helped with canada ’ s international credibility. and this led to a reduction in the risk premium demanded by investors. the fiscal improvement meant that the bank of canada was in a position to lower interest rates more easily when economic circumstances warranted. the lower interest rates reduced debt - servicing costs, stimulated economic growth, and boosted government revenues, which led to an even better fiscal position. the main point here is that, while the initial work of fiscal consolidation is certainly difficult, it is necessary in order to enjoy the fiscal dividends later on. the final policy principle is the one that relates most directly to the bank of canada ’ s primary responsibility — monetary policy. the oecd consensus holds that price stability is the appropriate goal for monetary policy over the medium term. in canada, we try to achieve this goal through an inflationtargeting system. the bank of canada reached an agreement with the federal government in 1991 to try to keep inflation, as measured by the consumer price index, at the 2 per cent midpoint of a 1 to 3 per cent target range over the medium term. importantly, we take a symmetric approach to our inflation target. this means that we worry as much about the trend of inflation falling below the target as we do about inflation rising above the target. we have found that this symmetric approach has been very effective in promoting low, stable, and predictable inflation in canada. following a period of higher and more variable inflation in the 1970s and 1980s, the inflation - control targets helped to anchor monetary policy. inflation quickly fell into the target range, and inflation expectations became focused on the target. this has helped to smooth out the ups and downs of the business cycle and, more generally, has led to stronger economic growth in the long term. those are the four principles on which the oecd policy consensus is based : trade liberalization, structural reform, sound fiscal policy, and monetary policy focused on inflation control. canadians spent a great deal of effort putting the four elements of this framework into place over the past decade or so. it certainly was not easy. it involved a fair bit of short