to determine the strength of potential output growth and the size of the output gap and the labour market gap. rest assured, we will conduct monetary policy that is appropriate and consistent with achieving our target of 2 per cent inflation. conclusion many of the conditions needed to support a return to natural growth are already in place in canada. these include a sound macroeconomic framework, a stable financial system, a well - educated workforce, and abundant natural resources. we are optimistic that the gathering momentum in foreign demand, especially in the united states, should help lift the confidence of canada ’ s business leaders and exporters. we can expect the emergence of new products, new processes, new structures and new industries – in short, a resurgence of the creation side of the creative - destruction process we attribute to joseph schumpeter. it may be slow in coming, but it will emerge, and it will serve as a driving force of economic growth. the bank is absolutely committed to keeping inflation predictable, stable and on target. this is sacrosanct. our flexible inflation - targeting framework is the best contribution monetary policy can make so that canadian households and businesses can make decisions about their financial future with confidence. in short, this is what we can do to help nurture a return to natural economic growth in canada. bis central bankers ’ speeches

in capital spending and employment in these sectors. a surge in investment in machinery and equipment across the economy suggests that firms are taking advantage of the stronger exchange rate ( which reduces the cost of imported machinery and equipment ) to improve their productivity and enhance their competitiveness. many manufacturers are taking advantage of lower - cost imported inputs or shifting their focus to highervalue - added production. labour is also adjusting to the terms - of - trade shock. the evidence shows that labour markets in canada are relatively flexible, which helps the country adjust to labour - demand shocks. 7 while employment has decreased markedly in manufacturing since 2004, it has grown strongly in non - farm primary industries, in construction, and in other sectors that are driven by the strength in domestic demand - for example, finance, insurance, real estate, and health and education services. these developments have involved a sharp increase in net migration of labour to alberta from other parts of the country. employment growth in ontario and quebec has moderated a bit, but still averaged a relatively robust 1. 3 per cent from july 2004 to july 2006. the economist coined this term in 1977 to describe the adverse effect that large - scale natural gas development in the north sea had on dutch manufacturing through a real appreciation of the guilder. an excellent general equilibrium analysis of booms in the resource sector can be found in w. m. corden. 1994. " booming sector and dutch disease economics : survey and consolidation. " oxford economic papers, new series 36 ( 3 ) : 359 - 80. t. bayoumi, b. sutton, and a. swiston. 2006. " shocking aspects of canadian labor markets. " imf working paper no. 06 / 83. overall, the canadian economy has been adjusting rather well, though not without pain, to a significant change in economic circumstances. however, the adjustment is not over yet, and challenges remain. there are still barriers to labour mobility and to interprovincial trade, and pressures are building on housing markets and infrastructure in regions of strong growth - most notably, alberta. these are reflected in intensified labour shortages and differentiated pressures on wages and housing prices. because governments receive a significant share of increased commodity - related revenues, they have the power to alleviate, but also to magnify, some of these pressures. let me now turn to the implications of a terms - of - trade shock for labour productivity and for potential output. implications for labour productivity and potential output a change in the terms of