and potentially overly optimistic assumptions about future developments. lower interest rates reduce the cost of financing the purchase or construction of houses and increase the value of collateral, enabling more borrowing than would otherwise be possible. while monetary policy rates influence mortgage rates across the yield curve, mortgage rates are ultimately set in the market, where a broad set of domestic and global forces play a role. among these forces, the so - called “ global savings glut ” has been particularly important in underpinning the trend decline in long - term borrowing rates over the past decade. flows of excess savings from emerging markets into the u. s. treasury market have restrained the long - term u. s. interest rates that provide the benchmark for yield curves globally. rough calculations suggest that the lower real rates from this phenomenon could justify a substantial proportion of the increase in house valuations across mature markets. 9 the the “ official ” savings rate refers to the personal savings rate as calculated in the canadian system of national accounts. the calculation of the personal savings rate does not incorporate spending on housing such as ownership transfer costs and renovations, which are considered investments, even though it could be argued that they are more akin to consumption. however, regardless of whether such spending is classified as investment or consumption, it is often financed with borrowed funds. a. caldera sanchez and a. johansson, “ the price responsiveness of housing supply in oecd countries ”, oecd economics department working papers, forthcoming, 2011. s. nickell, “ household debt, house prices and consumption growth, ” speech delivered at bloomberg in london on tuesday, 14 september 2004. bis central bankers ’ speeches eventual rebalancing of the global economy from deficit countries, like the united states, to surplus countries, like china, should dampen this effect. as in many other countries, cheap credit has been used to bid up the price of canadian houses, a non - tradable good, rather than invest in expanding the productive capacity and export competitiveness of our businesses. for example, over the past decade, housing debt grew by more than 150 per cent, while business borrowing rose by only 40 per cent. as a result, the stock of housing - related debt went from less than business debt to almost two - thirds more. domestic demand factors are not the only forces at work. some asian wealth is being invested in selected international housing markets as those investors seek out diversification and hard assets. this has become a familiar phenomenon in this city

ground - breaking innovations : 3 - d printing, artificial intelligence and synthetic biology, among others. bis central bankers ’ speeches the path home let me shift gears and talk about how we get home. how do we get to natural growth? what is the path? and how will we know we are on it? i have suggested before that there is a sequence of events we can anticipate : foreign demand will build ; our exports will strengthen further ; confidence will improve ; existing companies will expand their production ; companies will invest to increase capacity ; and, new companies will be created. evidence suggests we are now close to the tipping point from improving confidence into expanding capacity. we are seeing improvements in foreign demand. the bank expects that strong increases in u. s. business and residential investment will particularly benefit the sectors of canada ’ s export market that have lagged thus far, notably machinery and equipment and wood products. long - term interest rates have recently begun to return to more normal levels, consistent with the strengthening u. s. economy and the anticipation that the u. s. federal reserve will begin to exit from its unconventional monetary policy. but it ’ s important to make the distinction between policy tightening and a slowing of the rate at which additional stimulus is being provided. talk about “ tapering ” refers to the latter. i sometimes use a spaghetti - sauce model to help explain this. when the bubble burst in 2008, we were left with a crater, which is where we now find ourselves. if you look carefully at a pot of simmering spaghetti sauce, under every bubble there is a crater that ’ s equal in size. so, a 7 - year bubble, a 7 - year crater. central banks have been filling that crater with liquidity, so we can row our boats across it. we need to make sure we ’ re getting to shore and not just hitting a rock. but when we get to the other side, when we get home and can climb out of the crater, central banks can gradually reduce the rate at which they add liquidity. that ’ s not policy tightening. rather, it is another welcome sign that things are getting back to natural growth. it indicates that the underlying momentum of the u. s. economy is expected to hold. further, the efforts of canadian businesses to diversify into faster - growing emerging markets will pay off and will also help canada ’ s export performance. exports more than doubled over the past decade to countries that are not members of the organisation