these shifting trends. in the pursuit of flexibility, how do we prevent this from looking terribly arbitrary? these difficulties are not trivial, so considerable care needs to be taken. the benefit of greater flexibility may not be worth the risk of forfeited credibility, particularly if it simply adds for a full discussion, see m. carney, " principles for liquid markets " ( speech to the new york association for business economics, new york, new york, 22 may 2008 ). see the presentations by issing and woodford to this conference, published by the bis. some of these effects are not that material. recent bank of canada research estimated that, on average, the direct effect of consumer goods imported from china reduced the inflation rate by about 0. 1 percentage points per year from 2001 to 2006. see l. morel, " the direct effect of china on canadian consumer prices : an empirical assessment " ( discussion paper no. 2007 - 10, bank of canada, 2007 ). to confusion about the conduct of policy. this points to the overriding importance of communication, rightly stressed by alan blinder. 7 the current environment underscores many of the strengths of flexible inflation targeting. the commodity - price shock has resulted in inflation rising above target in a number of jurisdictions. provided expectations are well - anchored, policy appropriate, and communication effective, people will look through this spike to the eventual return of inflation to its well - understood target. of course, this implies the need for short - term flexibility in the target, but a well - designed inflation - targeting regime allows for temporary deviations from target in the face of shocks. provided the framework retains credibility, that flexibility can and should be used. price - level targeting there is one final consideration. inflation - targeting regimes have one element of flexibility that could potentially reduce credibility : their use of an annual inflation measure that allows monetary authorities to overlook price - level adjustments that they believe to be one - off events. bygones are bygones. this is not a problem when shocks are small and symmetrical because the price level will fluctuate around the level consistent with the inflation target. indeed, that has been our experience in canada over 15 years of targeting inflation. shocks have been random and the price level has ended up almost exactly where one would have expected since we adopted a 2 - per - cent target. however, if shocks were large and one - sided and policy did not respond, the price level would drift from the expected path

systemic risk associated with it and in the case of insurance, the emphasis is upon asset protection. such differences lead to basic differences in the approach and management and, therefore, it would be useful to address implementation aspects separately sector - wise as far as possible, even though the design may be centralised. fourthly, in implementing the codes, since there is a multiplicity of institutions or arrangements for regulating different financial sector segments like insurance, banking, securities markets and payment and settlement, overall approach to cover different agencies in overlapping / grey areas of regulation become important. in the absence of well - defined regulatory roles and responsibilities combined with over - viewing or overseeing arrangements, there are possibilities for regulatory gaps / overlaps leading to regulatory arbitrage by market agencies. the use of the word coordination is avoided deliberately, preferring the word oversee since a rigid and centralised approach to compliance in this complex task covering several institutions may be counter - productive. fifthly, transparency practices are often addressed to financial agencies ( regulatory authorities ) and not applicable to companies or other entities in the private sector. the emphasis on the implementation of standards and codes and accountability thereof is still heavily concentrated in the official sector. there is some asymmetry here. an optimal balance between regulation and competitive efficiency in the financial system and markets can be achieved only with equal emphasis on responsibility and accountability of the private sector. the focus of imf is also with regard to codes mostly in respect of regulators and not so much with private sector. international accounting standards and standards set by securities market associations are, no doubt, expected to cover issues relating to private sector market participants. every effort should be made to recognise and correct the asymmetry. sixthly, financial agencies may be justified not to disclose some policy measures which are in progress, contingency plans, corrective actions, emergency lending decisions and supervisory or enforcement actions. revealing of such information could be based upon case - by - case deliberations and no standardisation is possible in such cases. it should also be emphasised that the transparency practices may not be the same and the relevance and applicability of practices may differ between financial sector agencies. for instance, ‘ market efficiency ’ should be relevant more for securities regulatory authority ; the ‘ market and systemic stability ’ would be more relevant for a central bank and other supervisory agencies ; and ‘ client - asset protection ’ would be more relevant for institutions like deposit insurance companies. seventhly, the practice evolved in india is in finding solutions through a