, central banks have considerable experience dealing with inflation that is above target and can act quickly to rein it in. in fact, given household debt levels, we think that interest rate increases could have a larger impact than in the past. if inflation were to surprise on the downside and remain stubbornly below target, that could be harder to deal with. given where the policy rate is today, there would not be much more conventional monetary policy could do. we have a greater appreciation of this risk now than we did before the global recession, when we were more concerned about the upside risks to inflation. if we were actually in a situation of secular stagnation, well, we would need to consider a different policy framework. one option that has been put forward would be to raise the inflation target in order to deliver negative real interest rates, since nominal interest rates can ’ t go below zero. 12 not only would we face the costs of higher inflation, we would also risk stoking financial imbalances. 13 we are weighing the risks to financial stability posed by a low interest rate environment. we have made it clear that household imbalances are at the top of our list of vulnerabilities. but monetary policy is not the primary tool to address these risks. regulation and supervision, the secular stagnation hypothesis posits that much of the current deficiency of demand is a structural feature of the economy. in order to explain why the structural deficiency of demand was not evident before the crisis, proponents of secular stagnation argue that it was masked by financially unsustainable growth prior to 2008. a more likely explanation is that deficient demand since the crisis has been due to deleveraging and uncertainty in many jurisdictions. in canada, weak global demand is a more obvious explanation than secular stagnation. moreover, the data suggest that as headwinds dissipate, growth is picking up and output gaps are closing in many economies, including canada and the u. s. o. blanchard, g. dell ’ ariccia, and p. mauro, “ rethinking macroeconomic policy, ” imf staff position note, 12 february 2010, spn / 10 / 03 ; p. krugman, “ inflation targets reconsidered, ” draft paper for ecb sintra conference, may 2014. some, including delong and summers ( 2012 ) and summers ( 2014 ), have argued that stimulative fiscal policies should be used

world has just seen are typically followed by growth that is much slower than in the wake of a normal recession. the legacy of a financial crisis is a heavy burden for any country, and paying down debt impedes normal economic growth for a long time. 2 this makes the task of disentangling the cyclical from the structural more difficult, but it needs to be done in order to determine the rate of non - inflationary this estimation of job losses is relative to trend. see “ global employment trends 2014 : the risk of a jobless recovery, ” international labour organization, geneva, 2014. this pattern has been well documented by harvard professors carmen reinhart and kenneth rogoff, among others. bis central bankers ’ speeches growth. as inflation targeters, the rate of potential output growth matters a lot to us. it is a critical input to the appropriate path for policy rates. lost potential from the crisis cyclical factors have clearly been playing a starring role in this underwhelming recovery. during the crisis, demand plummeted and so did output. as workers left the labour force and firms cancelled capital investments or went out of business, potential output growth declined as well. we are still facing headwinds from the deleveraging of households, fiscal consolidation and uncertainty. we estimate that potential output in canada is about 3 per cent below where it would have been without the recession. that ’ s roughly $ 3, 500 per household. in the united states, where the crisis hit harder, estimates of lost potential range from 5 per cent to 13 per cent – that ’ s us $ 6, 500 to us $ 18, 000 per household. demographics and labour supply we also have structural factors weighing on potential. the population is aging, there are risks that some working - age people who left the labour market may not return, and there are concerns that technology is not going to deliver the leaps in productivity that we have seen in the past. let ’ s start with demographic trends. globally, over the next two decades, the number of people aged 65 and over will rise by more than 80 per cent, from 600 million to 1. 1 billion. canada is no exception to this trend. the baby boomers are starting to retire, and so the proportion of the population that is of working age is shrinking. early retirement is also taking people out of the labour force. for canada, this has subtracted about 0. 45 percentage points from potential gdp growth over the last five years