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There are three main issues I want to address publicly as I begin my term: the Bank's contribution to good economic performance; the Bank's contribution to promoting financial stability, both nationally and internationally; and the importance of open and frank dialogue with business, labour, and the general public.

The Bank of Canada today released the October Monetary Policy Report, which discusses current economic and financial trends in the context of Canada's inflation-control strategy.

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.

This article provides answers to several key questions about Canadian monetary policy. First, what is monetary policy? Second, why does the Bank of Canada focus on the control of inflation rather than other macroeconomic variables? Third, how do the Bank's actions influence the rate of inflation? And, finally, how can monetary policy deliver genuine and significant benefits to society?

On 23 January, the Bank reduced the Bank Rate by one-quarter of one percentage point to 5 3/4 per cent.

At the time of the October Monetary Policy Report, the Bank projected that core inflation would rise in the fourth quarter of 2002, reflecting a combination of one-off factors - including the rise in insurance premiums - and the “echo effect” from developments towards the end of 2001.

Since the October Monetary Policy Report, three developments have led the Bank of Canada to modify its outlook for economic growth and inflation in Canada.

The Canadian economy grew broadly in line with the Bank’s expectations in the second half of 2007.

An important channel in the transmission of monetary policy is the relationship between the short-term policy rate and long-term interest rates. Using a new term-structure model, the authors show that the variation in long-term interest rates over time consists of two components: one representing investor expectations of future policy rates, and another reflecting a term-structure risk premium that compensates investors for holding a risky asset. The time variation in the term-structure risk premium is countercyclical and largely determined by global macroeconomic conditions. As a result, long-term rates are pushed up during recessions and down during times of expansion. This is an important phenomenon that central banks need to take into account when using short-term rates as a policy tool.