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Governor Stephen S. Poloz discusses the evolution of economic models and the need for central bankers to apply judgment in using them.

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.

Anyone who has read our last Monetary Policy Report, the winter issue of the Bank of Canada Review, or our just-released Annual Report knows that the Bank has been positive about Canada's economic outlook. Basically, we are looking for a solid pickup in the pace of economic expansion in coming months, with inflation remaining low. And, with improvements in the basic foundation of our economy, we see the potential for sustained good economic performance over the medium term.

This article by the Bank's visiting economist examines the role of money in the transmission of monetary policy. Professor Laidler argues against the view of money as a passive variable that reacts to changes in prices, output, and interest rates but has no direct causative effect on them. He maintains that the empirical evidence supports the view of money playing an active role in the transmission mechanism. While he agrees that individual monetary aggregates can be difficult to read because of instabilities in the demand-for-money function, he argues that monetary aggregates, particularly those relating to transactions money, should have a more significant place in the hierarchy of policy variables that the Bank considers when formulating monetary policy.

Information received since the last Monetary Policy Report continues to show solid economic growth in the United States, Europe, and the emerging markets.

In the November Monetary Policy Report, the timing and extent of the recovery in economic activity in Canada this year was seen as depending crucially on geopolitical developments and on how quickly consumer and business confidence would return to normal.

The Canadian and global economies are evolving essentially in line with the Bank’s expectations.

The adjustment of the Canadian economy to major global developments continues to shape the economic outlook.

Since the April Monetary Policy Report, there have been a number of unanticipated developments that have changed the outlook for inflation and economic activity in Canada.

This article outlines one of the Bank's key approaches to dealing with the uncertainty that surrounds decisions on monetary policy: the consideration of a wide range of information from a variety of sources. More specifically, it describes the information and analysis that the monetary policy decision-makers—the Governing Council of the Bank of Canada—receive in the two or three weeks leading up to a decision on the setting of the policy rate—the target overnight interest rate. The article also describes how the Governing Council reaches this decision.