and h. shin, “ financial intermediaries and monetary economics, ” in handbook of monetary economics, vol. 3a, edited by b. friedman and m. woodford ( amsterdam : north holland, 2010 ), 601 – 50 ; r. rajan, “ has finance made the world riskier? ” european financial management 12, no. 4 ( 2006 ) : 499 – 533 ; and g. jimenez, s. ongena, j. peydro and j. saurina, “ credit supply and monetary policy : identifying the bank balance - sheet channel with loan applications, ” american economic review ( forthcoming ). j. boivin, t. lane and c. meh, “ should monetary policy be used to counteract financial imbalances? ” bank of canada review ( summer 2010 ) : 23 – 36 and bank of canada, “ renewal of the inflation - control target : background information – november 2011. ” f. mishkin, “ monetary policy strategy : lessons from the crisis, ” working paper no. 16755, national bureau of economic research, 2011 and i. christensen and c. meh, “ countercyclical loan - to - value ratio and monetary policy ” ( bank of canada, forthcoming ), argue further that bis central bankers ’ speeches a virtue of flexible it is that if the regime is credible, the inflation target can anchor inflation expectations while leaving room for policy - makers to occasionally use monetary policy for financial stability purposes. the bank of canada ’ s policy interest rate has remained at its current level of 1 per cent for more than a year – a degree of stimulus appropriate to an environment where the canadian economy faces considerable external headwinds. in its latest monetary policy report, the bank projected that this accommodative policy stance – with a gradual reduction in monetary stimulus over the projection horizon – would be consistent with returning inflation to the 2 per cent total cpi inflation target in seven quarters, in line with the typical monetary policy horizon. as i have discussed, however, a key feature of canada ’ s inflation - targeting framework is the scope to adjust this horizon if circumstances warrant. equipped with this flexibility, the bank will continue to monitor carefully economic and financial developments in the canadian and global economies, together with the evolution of risks, and set monetary policy consistent with achieving the 2 per cent inflation target over the medium term. conclusion the post - crisis world presents economists, academics and policy - makers with many

central bank would seek to stabilize the gdp deflator in order to achieve price stability. but the gdp deflator measures the price level of domestically produced goods and services, which may not match up well with the cost of living that the cpi measures and that matters most for welfare, particularly in small, open economies where imports make up a substantial share of the consumption basket. all of that said, when stuck at the zero lower bound, there could be a more favourable case for ngdp targeting in providing additional stimulus and better facilitating the deleveraging process in the aftermath of a financial crisis. the exceptional nature of the situation, and the magnitude of the gaps involved, might make such a policy more credible and easier to understand. depending on the depth and duration of the zlb episode, our calculations suggest that the adoption of a ( temporary ) price - level target, if well understood and credible, could eliminate more than half of the losses associated with the impossibility of providing additional monetary stimulus through a lower policy rate. ngdp - level targeting may thus merit consideration as a temporary unconventional monetary policy tool. but ngdp targeting does not, in our view, amount to a complete policy framework. what is needed is a robust framework that remains appropriate and well understood under any circumstances. why flexible inflation targeting provides a robust framework flexible it is such a framework for all seasons. the flexible it framework in place in canada since 1991 ( similar to the one recently adopted by the fed ) focuses on a medium - term inflation goal. this is a means to an end, the end being economic well - being. the central bank focuses on this goal because it is both immutable and achievable. the way in which we achieve the goal can be adjusted, depending on the circumstances. this flexibility is important to be able to stabilize other aspects of the economy that also matter, but for which the desirable level can change over time or depending on the circumstances. thus, under flexible it, the central bank seeks to return inflation to its medium - term target while mitigating volatility in other dimensions of the economy that matter for welfare, such as employment and financial stability. for most shocks, these goals are complementary. however, for shocks that pose a trade - off between these different objectives, or that tilt the balance of risks in one direction, the central bank can vary the horizon over which inflation is returned to target. 10 the exercise of this flexibility cannot be arbitrary, and it requires a