also opted not to use one explicit focal measure of core inflation. both offer projections of cpi inflation without offering projections of core inflation. depending on which experience extreme movements at any given time. a good example would be the impact of severe weather on the supply and prices of certain food components. cpi - median captures the price change located at the 50th percentile ( in terms of the cpi basket weights ) of the distribution of price changes in a given month. it helps filter out extreme price movements specific to certain components. similar to cpi - trim, it eliminates all the weighted price variations at both the bottom and top of the distribution of price changes in any given month, except the price change for the component that is the midpoint of that distribution. cpi - common is based on trends in price changes that are similar across the various categories in the cpi basket, rather than focusing on increases to specific items, such as the prices of gasoline or fruit. it uses a statistical procedure called a factor model to detect these common variations, which helps filter out price movements that might be caused by factors specific to certain components. 13 such common movements in prices are more likely to reflect underlying inflationary pressures related to aggregate demand and supply forces than sector - specific disturbances. chart 2 : the three new measures of core inflation effectively filter out volatile but temporary price changes year - over - year percentage change, monthly data % - 2 range of preferred measures of core inflation sources : statistics canada and bank of canada calculations cpi inflation last observation : december 2016 cpi - common is calculated as follows : a factor model is estimated using data on year - over - year movements in 55 cpi components. the first principal component that is extracted from that estimation is then transformed into a core inflation rate measure using a simple linear regression of the annual cpi inflation rate, excluding the effect of changes in indirect taxes, on an intercept and on the first principal component. this process is performed monthly using the historical data series, starting in 1990. see “ consumer price index : the bank of canada's preferred measures of core inflation ” on statistics canada ’ s website. reliability of the three new core measures of the various core measures we evaluated, we found cpi - trim, cpi - median and cpi - common all met three of our four criteria : they were found to be roughly unbiased, more persistent than cpi inflation and related to underlying macroeconomic drivers, notably the output gap. cpi - common was the top performer for two criteria : it was the most persistent

. beyond disruption to financial markets, a disorderly correction might also lead governments to adopt wrong - headed protectionist measures, which would then exacerbate the damage to the global economy. but regardless of how these imbalances are resolved, it is clear that the resolution will require greater net national savings in the united states. investment in the u. s. economy will need more financing from domestic sources - be it from the household, business, or government sectors - and less from foreign sources. this implies an increase in net u. s. exports and a decrease in net exports elsewhere in the world, as well as an increase in domestic demand in other countries. exchange rate movements have an important role to play in this regard, because they can help redirect international trade and investment flows. in this context, efforts by some countries to slow or prevent required adjustments by pegging exchange rates are, in the end, counterproductive. i know that governors zhou and noyer fully understand that, by frustrating market mechanisms, such policies raise the risk of a much larger and more disorderly correction in the future, as well as an outbreak of protectionism. but we should not look to exchange rate movements alone to resolve the existing global imbalances. within the united states, higher interest rates can be expected to lead to increased savings. authorities could also encourage greater national savings with a tighter fiscal policy. and they could implement structural reforms to encourage national savings through taxation, social security premiums, and other measures. but if the united states alone were to act to resolve its imbalance by taking the steps i've just described, it would leave the global economy with much weaker aggregate demand. and so a number of other countries must focus on stimulating domestic demand. this task is made more urgent by the fact that the global economy is currently operating somewhat below capacity. the fact that inflationary pressures are absent globally is evidence of this. 1 / 3 so, how can we stimulate domestic demand outside the united states? clearly, monetary authorities bear most of the responsibility for stabilizing domestic output in the short run and moving their own economies towards full production capacity. but monetary policy may not be as effective as it could be, if there are problems with an economy's structural or fiscal policies. thus, the appropriate policy prescription depends on each country's circumstances. structural reforms to remove market rigidities are important for most of us. many need to improve or develop their financial system so that savings