in several ways, but let me highlight two that are particularly relevant in the current context. first, when inflation is low and stable, relative price signals are clear and readily apparent, and this helps businesses and households to make sound economic decisions. second, meeting the inflation target helps to anchor inflation expectations to the target which, in turn, helps to keep inflation low and the economy more stable. in the 1970s, which was the last time canada experienced a commodities boom on the scale of recent experience, monetary policy failed to anchor inflation expectations. so, when sharply higher oil prices pushed inflation up, workers and firms extrapolated this higher inflation forward, and prices and wages more broadly began to rise more quickly. the result was higher and more variable inflation, and a more painful economic adjustment. the other element of our monetary policy framework is the flexible exchange rate. the flexible exchange rate helps the economy to absorb shocks. just as the manitoba floodway absorbs some of the deluge of a spring flood, the floating dollar helps the economy to absorb shocks – especially external shocks that affect our economy differently than those of our major trading partners. the flexible exchange rate also supports economic adjustment because it is much easier to have changes in the relative price of canadian goods and services come through movements in the exchange rate than to require all domestic prices and wages to adjust. now, i said that the inflation target and the flexible exchange rate work together to promote our economic well - being. what this means in concrete terms is that relative prices can change without spilling over into generalized inflation, and the economy can operate close to its potential. this means that labour and capital are allocated more efficiently, and resources that move out of contracting sectors are put to work in expanding sectors. and that's what we've been seeing in canada. with unemployment at a 33 - year low, it's clear that canada has been going through this difficult process of adjustment with considerable success. our job at the bank of canada is to continue to aim for 2 per cent inflation so that when some prices change, these are clearly relative price changes, and longerrun inflation expectations remain anchored at the 2 per cent target. to summarize, our monetary policy framework has served us well in maintaining a domestic environment of growth and stability. together with other domestic policies, it has helped canada to adjust to some significant changes in the global economy. but sound domestic policies are not sufficient to eliminate spillover effects from decisions and events on the other side of the

declined by about 250, 000 jobs. at the same time, the primary and service sectors have been expanding capacity and employment in response to strong demand. over the past three years, employment in these sectors has increased by about 900, 000 jobs, more than offsetting the reduction in manufacturing employment. of course, this adjustment is not affecting all parts of the country in the same way. growth in output, employment, and incomes has been fastest in western canada. nevertheless, growth in canada has been broad based. strength in domestic demand has supported solid growth of output and employment right across the country. manitoba is in the middle of canada in more ways than one. it has a well - diversified economy that closely resembles the structure of the canadian economy. and in the past three years, gdp in manitoba has grown by an average of 2. 8 per cent, very close to the national average. economic adjustment is always difficult, but it's necessary if we are to put capital and labour to work where they are most needed. this, in turn, helps to support rising living standards for canadians. the main point here is that the canadian economy has adjusted – and is continuing to adjust – to take advantage of our opportunities in an integrated global economy. now let me turn to the role played by monetary policy. the role of monetary policy the bank of canada act directs the bank to " promote the economic and financial welfare of canada. " what we've learned from experience is that the best contribution monetary policy can make to canada's economic and financial welfare is to maintain low, stable, and predictable inflation. since 1991, canada's monetary policy framework has consisted of two main elements – an inflation target and a flexible exchange rate. this framework has allowed canada to pursue an independent monetary policy – a policy suited to our own circumstances. the two main elements work together and reinforce each other. the result has been low and stable inflation, with less volatility in output and employment. let me elaborate on each of these elements. first, the inflation target. since 1995, the target for inflation has been the 2 per cent midpoint of a 1 to 3 per cent inflationcontrol range. to keep inflation at 2 per cent, the bank tries to keep a balance between the overall demand for and supply of goods and services in the canadian economy. when overall demand and supply are in balance, the economy can operate at its full potential, and inflation is stable. inflation control contributes to better economic performance