to focus my remarks today on communication and monetary policy. i will structure my remarks to address three key issues : • first, why communication has become so important in conducting monetary policy ; • second, the need for central banks to be strategic in their communication approach ; • and third, some practical challenges central banks must manage in implementing their communication strategies. 1. importance of communication in conducting monetary policy let me begin, then, with the importance of communication. for the bank of canada, communication is a strategic priority in supporting our goal of preserving low, stable, and predictable inflation. indeed, i would submit that effective communication has become a vital tool in the implementation of monetary policy. why this emphasis on communication as an important monetary policy tool? there are at least two key reasons : first, experience has shown that communication improves the effectiveness of monetary policy or, put another way, monetary policy is most effective when it is effectively communicated ; and second, communication helps central banks to be more accountable. i want to touch on each of these points in turn. like all public policies, monetary policy benefits from increased public understanding and support. this translates into what i call “ legitimacy of policy. ” through clear explanation of why our policy objectives and actions are the right ones, we aim to gain public support for what we are doing. with success on this front, we begin to shape expectations and influence behaviour in ways that support policy outcomes. central to our effort is clarity of purpose. we at the bank of canada have found that a clear statement of our objective - an explicit inflation target - is crucial. with the clear recognition and appreciation of this objective, agents in the economy - consumers, investors, businesses, financial market participants - begin to adjust their behaviour in ways consistent with an expectation that future inflation will be firmly in line with the inflation target. price, wage, and financial decisions will tend to be consistent with the target. and the net effect will be a more stable macroeconomic environment and greater success in keeping inflation low and stable. the second reason why communications is important is accountability. a clear basis for judging a central bank ’ s performance is extremely important to its credibility and independence. for the bank of canada, the explicit inflation target is that basis for accountability. put simply, the public can measure our performance by how successful we are in achieving the 2 per cent inflation target. the fact that we have had a pretty good record in this regard has reinforced our credibility and the public ’ s confidence that we will keep

david dodge : brief outlook for economic growth and inflation in canada opening statement by mr david dodge, governor of the bank of canada, before the house of commons standing committee on finance, ottawa, 7 november 2001. * * * we are pleased to appear before this committee, on the occasion of the release today of our autumn monetary policy report, which provides our latest assessment of the outlook for economic growth and inflation in canada. mr. knight and i hope to be able to return for future issues of the report, every six months. right now, all national economies face difficulties — difficulties stemming from the further weakening of the world economy and from the terrorist acts in the united states. as businesses, governments, and individuals in canada — and around the world — strive to come to terms with the implications of those acts, the main preoccupation is, naturally, with the near term. but, as i said in a speech in moncton two weeks ago, at times like this, it is also very important that we step back and look past current developments, to the longer - term trends and potential of our economy. viewed from this angle, the outlook is brighter. the progress that we have made over the past decade in strengthening our economic foundations is remarkable. and it should stand us in good stead, no matter what short - term turbulence and uncertainties we face. true, at the moment, we are beset by tremendous uncertainties. and i would like to turn to those now, as i discuss the economic outlook and the steps that the bank is taking to support growth in canada. when i appeared before you in may 2001, the incoming information was broadly in line with the bank's expectations of a modest pickup in growth in the second half of 2001 and further strengthening in 2002. among the factors that would bring this about, we counted the completion of the inventory adjustment, tax cuts, the easing in domestic monetary conditions, and a recovery in u. s. business investment. but, by midsummer, evidence began to accumulate that the expected rebound in u. s. investment would be delayed and that the economic slowdown there would be deeper and more protracted than previously expected. economic activity outside north america had also begun to show more clearly the effects of weaker u. s. growth and of the ongoing global retrenchment in the information and telecommunications sectors. in canada too, there were signs that domestic demand, which had held up through the first part of 2001, was soft