. moreover, complying with the sarbanes - oxley act of 2002 may have affected capital spending as firms scrambled to meet the 2004 and 2005 deadlines. clearly, compliance costs have been substantial, perhaps diverting funds and attention away from capital spending plans. however, capital spending to update information systems to address the enhanced auditing needs may be offsetting at least a portion of any damping effect the legislation may have had. in any event, the market effects of corporate governance scandals appear to have faded some time ago. and, at larger companies, where systems have been adapted to the new requirements, compliance now should be more routine, freeing time and attention to concentrate on business strategy and expansion. if these types of influences have had any restraining effects, they should be receding. changing replacement cycles are another potential downward influence on the pace of investment. before 2000, many firms invested in new technologies to replace those not compatible with the century date change. this effort tended to speed up replacement cycles ( and thus depreciation ), boosting gross investment at that time. the resulting bunching of purchases may have contributed to the drop - off in investment in 2001 as firms with relatively new, efficient capital goods saw less reason to upgrade. also, during 2001 and 2002, anecdotal reports suggested that many firms saw no need to upgrade equipment because no compelling new technology or application had been released, which would have tended to lengthen the replacement cycle. if replacement cycles since then have remained longer than in previous decades, firms would respond with a lower level of gross investment. and, anecdotes and surveys suggest that replacement cycles have in fact lengthened in this century compared with the late 1990s. but the implied drop in the rate of depreciation is much too small to explain the low - investment puzzle. some have posited that low investment in the united states reflects firms'decisions to meet expanding demand by investing overseas rather than at home. economic theory suggests that in countries where labor is cheap and abundant, all else equal, we would expect the marginal product of capital to be relatively high, making these economies attractive places in which to invest. thus, countries such as china ought to be seeing an influx of direct investment. however, the dollar value of u. s. direct investment into china averaged about $ 2 billion per year in the first five years of this decade, much less than 1 percent of domestic investment spending and not enough to be a major influence on investment spending

delivering on fiscal austerity in key countries and full implementation of announced measures to make the european financial stability facility more flexible. but more is required. the immediate priorities are to provide a funding backstop for vulnerable european sovereigns that is sized to the scale of the problem and a comprehensive capital plan for european banks. in our opinion, this can be done by using existing european resources more efficiently. these steps must be complemented by governance reforms and credible fiscal arrangements within the european monetary union. in other advanced countries, the priority must be to agree on credible, concrete and executable plans to restore fiscal sustainability consistent with the commitments made at last year ’ s g - 20 leaders summit in toronto. in many emerging - market economies, greater exchange rate flexibility is necessary to better manage demand pressures and inflationary risks, while facilitating a global rebalancing of demand. greater exchange rate flexibility between the united states and china is required to help the recovery in the former and control inflation in the latter. finally, advanced and emerging countries alike must implement agreed financial sector regulatory reforms to build a more resilient financial system that better serves the needs of households and businesses. in the face of a difficult external environment, the bank of canada will continue to support canada ’ s economic expansion by keeping inflation low, stable and predictable. bis central bankers ’ speeches since the crisis erupted four years ago, the bank has demonstrated its nimbleness in the conduct of monetary policy. we reacted quickly and forcefully during the downturn. as the canadian recovery has progressed, we have emphasized that we would be prudent with respect to the possible withdrawal of any degree of monetary stimulus. conclusion i must conclude. recoveries after financial crises feel more like a convalescence. for private sector investors, the fundamentals of sound portfolio management have not changed, but the economic landscape has. sovereign debt is no longer a risk - free asset, the shift in the economic centre of gravity to emerging - market economies has accelerated, and low - for - long interest rates are changing behaviours and straining some business models. the private sector bears much responsibility for the excesses at the heart of the 2008 – 09 financial crisis. risk management can and should be strengthened, and adapted to new realities. public policy has a critical role to play in mitigating systemic macroeconomic risks. more action is needed to contain sovereign risks, promote a rebalancing of global demand and implement financial regulatory reform. the distant horizon of the new