Dodge discusses monetary policy and the economy, calls for stronger IMF

In a speech to the Canadian Netherlands Business and Professional Association and the European Union Chamber of Commerce in Toronto, Bank of Canada Governor David Dodge described the paradigm used by the Bank to conduct monetary policy.

Under the inflation-targeting framework, people can easily understand how the Bank will react to changing economic conditions. "This simple paradigm is very helpful because monetary policy works better when it is understood," the Governor said.

Governor Dodge also reiterated the Bank of Canada's outlook for growth in the global and Canadian economies in 2007 and 2008. The Bank projects that the Canadian economy will continue to operate close to its production capacity through to the end of 2008, he said.

The risks to the Bank's outlook are roughly balanced, Governor Dodge noted, but have diminished somewhat in recent months. However, he did point out that the possibility of a disorderly resolution of global imbalances remains.

The presence of these global imbalances demonstrates the need for a more effective International Monetary Fund, Governor Dodge said. "The danger posed by global imbalances shows that we still need an international institution charged with supporting the smooth functioning of the global economy."

The Governor stressed that the key to a more effective IMF is to improve the way it conducts surveillance. "As the world's economies become increasingly globalized, I would argue that now, more than ever, a strengthened IMF is in every country's interest," Governor Dodge said.