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In the last half-year, the economic expansion in Canada has become well established, supported by low inflation, highly stimulative monetary conditions, and a strong U.S. economy.

In the year just ended, the global economy faced a number of exceptional challenges, reflecting a wide range of economic, financial, and geopolitical risks and uncertainties. These included the fallout from the September 2001 terrorist attacks, corporate accounting scandals, stock market volatility, and developments in the Middle East. Despite this global backdrop, the Canadian economy outperformed virtually all other industrial economies, growing by about 3 1/4 per cent and creating 560,000 jobs, while inflation expectations remained well anchored to the Bank of Canada’s 2 per cent inflation-control target.

This Report presents the Bank of Canada’s assessment of the trend of inflation in Canada and explains the monetary policy actions deemed necessary to keep inflation within the Bank’s inflation-control target range.

There have been a number of significant economic and financial developments since the time of the July Monetary Policy Report Update.

Since the last Report, the Canadian economy has advanced broadly in line with expectations.

Proportional reduction is a common cartel practice in which cartel members reduce their output proportionately. We develop a method to quantify this reduction relative to a benchmark market equilibrium scenario and relate the reduction to the traditional conduct parameter.

The global economy has continued to grow at a robust pace since the July Monetary Policy Report Update.

We build upon new developments in the international trade literature to isolate and quantify the long-run economic impacts of tariff changes on the United States and the global economy.

During the past six months, global economic uncertainties have intensified, largely as a result of developments in emerging-market economies.

Growth in the Canadian economy has been essentially in line with the expectations set out in the Bank’s January Monetary Policy Report Update.