stephen s poloz : models and the art and science of making monetary policy remarks by mr stephen s poloz, governor of the bank of canada, at the university of alberta school of business, edmonton, alberta, 31 january 2017. * * * introduction the alberta school of business sits a couple of hundred metres east of the centennial centre for interdisciplinary science, which houses a number of telescopes. when you look at a star through a telescope, you see it not as it exists today, but as it existed years in the past, when its light started heading toward earth. in that sense, a telescope is something like a time machine. if only those telescopes could do the reverse and see into the future! economic forecasting and policy making would be a snap. but since we do not have a machine that lets us see the future, we have to make do with the next best thing : the economic model. models have become indispensable to the conduct of monetary policy. this is because central banks typically use monetary policy to target a variable, such as inflation, in the future. policy actions take time to affect targets. for example, it takes up to two years for a change in interest rates to have its full effect on inflation. this means that there is little point reacting to the latest movement in inflation. rather, central bankers need tools that can forecast where inflation is likely to be two years from now and tell them how to adjust policy today so inflation will hit the target. of course, economic models are not crystal balls. they generally explain what happens in the economy on average — they always make errors, but the errors are expected to offset each other over time. the fact that models can deliver only an approximation of the truth means that conducting monetary policy is not a mechanical exercise. it is a complex blend of art and science — in effect, it is an exercise in risk management. sooner or later, something extraordinary happens to the economy that a model cannot explain, pushing it persistently off track. a forecaster can rationalize a string of prediction errors for a while and adjust his or her judgment around the outlook accordingly, but eventually the time comes to rebuild the model. the global financial crisis of 2007 – 09 is one such event : a significant outlier in economic history. models have struggled to explain the forces that led to the crisis and the behaviour that followed. this experience is now guiding the work of model builders. and in the bank ’ s most recent medium - term plan

paul jenkins : trends and challenges in the global economy and what they mean for canada and ontario remarks by mr paul jenkins, senior deputy governor of the bank of canada, to the london chamber of commerce, london, ontario, 2 april 2008. * * * good morning. first, i would like to thank the london chamber of commerce for inviting us here today. it's a pleasure for me to be back in london, given my close family ties and my years at the university of western ontario. as is the case for so many cities and regions in canada, london's economy and that of southwestern ontario are directly affected by changes in the global economy. and, as with so many things in life, the better we understand the forces of change, the better equipped we are to deal with them. what i'd like to do this morning is discuss some of the key trends in the global economy, as well as the challenges they present, and then talk about some of the implications for canada and for ontario. and because one of the main reasons that we have come to london is to hear your thoughts and concerns, i'll leave plenty of time for your comments and questions. macroeconomic trends in the global economy the turbulence in global financial markets, which has been with us since last august, continues to be a major focus. but rather than starting there, allow me to first step back and provide a perspective that covers the past five or six years. from 2002 to 2007, the world economy expanded strongly, growing by an average of 4. 6 per cent per year, measured in terms of real gdp. the growth of world trade was even more impressive, at about 7 per cent on an annual average basis. this period of robust growth benefited most nations, and was strongest in emerging - market countries such as china, india, and brazil. in industrialized countries, growth was also steady and solid. what we are now confronting is a marked slowdown in global economic growth, emanating primarily from the sharp correction under way in the u. s. housing market and the associated tightening in credit conditions linked to the collapse of the u. s. subprime - mortgage market. i will come back to discuss these financial developments in a moment. but in keeping with the theme of taking a longer - term perspective, it's important to note that some slowing in global economic growth was necessary. after five to six years of nearly unprecedented growth, levels of economic activity around the globe