Mr. Thiessen was appointed Governor of the Bank of Canada on 1 February 1994, for a term of seven years, retiring on 31 January 2001.
Born in South Porcupine, Ontario, Mr. Thiessen grew up in a number of different towns in Saskatchewan. After graduating from high school in Moosomin, Saskatchewan, he worked for a chartered bank in that province.
Mr. Thiessen studied economics at the University of Saskatchewan and received an Honours BA in 1960 and an MA in 1961. The following year he lectured in economics at the university. From 1965 to 1967 he attended the London School of Economics, from which he received his PhD in Economics in 1972.
He joined the Bank of Canada in 1963 and worked in both the Research and the Monetary and Financial Analysis Departments of the Bank. Mr. Thiessen spent the period from 1973 to 1975 as a visiting economist at the Reserve Bank of Australia.
At the Bank of Canada, Mr. Thiessen was successively appointed Adviser to the Governor in 1979, Deputy Governor in 1984, and Senior Deputy Governor in 1987. He has been a member of the Board of Directors of the Bank and of its Executive Committee since his appointment as Senior Deputy Governor.
In 1996, the government of Sweden awarded Mr. Thiessen the Order of the Polar Star in recognition of the assistance provided by the Bank of Canada to the Swedish central bank. In 1997, Mr. Thiessen received an honourary Doctor of Laws degree from the University of Saskatchewan.
In early 1994, Canada's economic situation was not that favourable—our economy was facing some rather serious problems. Today, too, we face some challenges. But our overall economic and financial situation is much stronger now than it was seven years ago.
One of the issues that has often surfaced over the years is the exchange rate for the Canadian dollar. Indeed, over the past couple of years, it has been a topic of considerable public discussion.
Over this period, there has been a fundamental transformation in the way monetary policy is conducted in Canada and in most other industrial countries. While globalization and technological change have played an important role in this area, as in so many others, they have not, to my mind, been the principal driving force behind this transformation. Far more important has been the interaction of experience and economic theory.
Today, I would like to bring you up to date on the Bank of Canada's views about the outlook for the Canadian economy. Prospects for the period ahead are generally very favourable.
With the technological revolution that is currently sweeping the globe, dealing with change is a growing challenge for businesses these days. This revolution is erasing national frontiers, intensifying competition, and transforming economies everywhere.
Last week, we released our eleventh Monetary Policy Report. Since our November Report, the Canadian economy has outperformed expectations. Bolstered by vigorous external and domestic demand, Canada's economic expansion strengthened in the second half of 1999 and into early 2000.
The 1990s was a difficult period for Canada and the Canadian economy. From the beginning of the decade, it was clear that we had to grapple with the problems that had been hampering our economic performance through most of the 1970s and 1980s.
When I appeared before you last April, there was still a high degree of uncertainty in the global economy related to the 1997-98 financial crisis in emerging markets and the associated fall in world commodity prices.
Both in Canada and elsewhere, much ink has been spilled over the past year on the pros and cons of different exchange rate regimes and the implications for monetary policy.
Public sector institutions have been undergoing significant changes over the past decade. One of the most important changes has been the move to greater accountability. Public institutions are now required to be more open and to provide more information about their operations. Or, to use the word currently in vogue, to be more “transparent.”
Over the past couple of years, there has been considerable debate about productivity and our standard of living in Canada. For the most part, the discussion of these issues has been useful, but at times it has been somewhat confusing.
Monetary policy actions take a relatively long time to affect the economy and inflation—anywhere between 12 to 24 months. Because of this, central banks must always look ahead and must put in place today the monetary conditions that are needed to help keep the economy on a sustainable path down the road. By 'sustainable' I mean a situation where economic growth and job creation are not at risk from rising inflation.
It is always a pleasure to return and speak to people in my home province. This time, we are here for a meeting of the Bank of Canada's Board of Directors. Once a year, our Board meets outside Ottawa, in a different part of the country. This year, we are delighted to be in Regina.
As the curtain comes down on the twentieth century and we move on to the next millennium, it is difficult to resist the temptation to be both retrospective and prospective.
It is always a pleasure to appear before your Committee following the publication of our Monetary Policy Report. We released our ninth Report last Wednesday. The Bank of Canada began publishing these Reports on a semi-annual basis four years ago, as part of our effort to increase the transparency and accountability of the Bank's conduct of monetary policy.
The world economy and Canada have had to navigate some difficult straits in the past couple of years. But we have made it through. And considering the tide from the Asian financial crisis that washed around the world, the Canadian economy has coped better this time around than in the past.
Since we have recently tabled the Bank of Canada’s Annual Report in Parliament, I would also be happy to answer any questions you may have about our stewardship of the Bank.
I am delighted to be with you this evening to celebrate the 35th annual meeting of the Mennonite Savings and Credit Union. On this occasion, I propose to speak about the Canadian economy and monetary policy. But given this audience, I thought I might start with some remarks on the future of the Canadian financial sector—a subject that has certainly grabbed its share of headlines over the past year!
Tony Hampson made a number of outstanding contributions to Canadian public life as well as having a successful business career. Many in this audience will be familiar with the fact that for a number of years he was Chairman of the C.D. Howe Institute's Policy Analysis Committee.
We have just witnessed the dawn of a new era in Europe. Beginning this month, 11 of the 15 member countries of the European Union have joined in a currency union. And they are using the euro as their common currency. The currency union is yet another step on the road to greater economic, social, and political integration in Europe—a vision some 50 years in the making.
When the Asian crisis erupted in the summer of 1997, few observers anticipated that international financial markets would still be under its influence more than a year later.
As an economist who worked as a banker for most of his career, Douglas Gibson brought an interesting perspective to public policy issues, to the relationship between government and business, and to the contribution of outside economists to government policies.
This past year, we have had to deal with the implications for our economy and our currency of increased global uncertainty and pressures arising from the problems that originated in Southeast Asia. I am sure that the effects of these developments, especially on primary commodities, such as oil and nickel, are already very familiar to Newfoundlanders.
Globalization—that is, the growing integration and interdependence of national economies—is changing dramatically the economic landscape. Countries are trading more goods and services, an increasing number of firms now operate across national borders, and savers and borrowers have greater access than ever before to global financial markets.
It can take anywhere from one to two years for monetary actions to have their full effect on the economy. Because of this, the conduct of monetary policy must be based on a view of what the economy will be like—not tomorrow, not in a month—but rather in one to two years' time.
Highlights
Information received since 14 January, when the update to our November Monetary Policy Report was completed, continues to point to a strengthening outlook for the world economy and for Canada.
In the United States, real GDP again exceeded expectations—rising at an annual rate of 5.8 per cent in the fourth quarter. While some price and cost pressures are evident in the United States, strong productivity growth has thus far held unit labour costs down. Because of the rapid expansion of demand above the growth of potential capacity, however, and the associated inflation risks, the Federal Reserve increased its federal funds rate by 25 basis points to 5.75 per cent on 2 February.
Although trend inflation remains low in the industrial countries, a number of other major central banks have also raised their policy rates in the last couple of weeks because of concern about future inflation pressures, given strengthening demand.
The buoyancy of external demand, particularly that coming from the United States, continues to show in our latest merchandise trade numbers. Export growth in November remained strong, with the overall trade balance in large surplus. World prices for our key primary commodities also continue to firm in response to rising global demand. On the domestic side, the latest information on demand and production points to continued robustness. Real GDP (at factor cost) rose 0.6 per cent (4.6 per cent year-over-year) in November, and employment continued to grow strongly through year-end and into January. Other indicators, including the latest data on the monetary aggregates, support this strong economic picture. The Bank now expects real GDP growth in 2000 to be near the top of the 2.75 to 3.75 per cent range projected in November.
Our core measure of inflation was 1.6 per cent (year-over-year) in December, slightly below expectations, partly because of temporary discounts on certain items. Core inflation is still expected to move up to the midpoint of the Bank's 1 to 3 per cent target range in the first quarter. Over the same period, the total CPI will likely rise to close to 3 per cent because of the recent sharp step-up in energy prices but is still expected to come down towards the core rate during the course of 2000 as energy prices moderate.
The Bank of Canada raised its Bank Rate by 25 basis points to 5.25 per cent on 3 February. The factors behind this decision included the strong momentum of demand in Canada from both external and domestic sources, the importance of approaching full capacity in a prudent way, and the risk of a spillover of potential inflation pressures from the United States.
: Recent economic and financial developmentsText of major 1995 lecture by Bank Governor Gordon Thiessen, plus articles from Bank of Canada Review and other sources
: Transmission of monetary policyGordon Thiessen, Governor of the Bank of Canada, delivered the HERMES-Glendon Lecture at York University, Toronto, in March 1995. The speech focussed on the interrelationships of uncertainty and the transmission of monetary policy to the economy. It looked at how the various types of uncertainty influence the behaviour of economic actors, and at how uncertainty affects the transmission of monetary policy through the economy.
The first part of the lecture outlines the Bank of Canada's view of the transmission mechanism, with considerable attention paid to the role of uncertainty. In the second part, the various ways in which the Bank has tried to reduce uncertainty are discussed. The various kinds of uncertainty that impinge on the economy and on the policy process are addressed.
: Monetary policy implementation
