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The Canadian economy continues to adjust to developments in the global economy.

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.

This Report outlines recent developments in the Canadian economy that affect the rate of inflation and provides an account of the measures taken by the Bank of Canada to control inflation.

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

The year that just passed posed many challenges for all Canadians. The slowdown in the global economy became more pronounced as the year went on, and this affected households, businesses, and governments alike. The tragedy of 11 September compounded the economic difficulties and issues facing us all. Through this period of rapidly changing circumstances, the Bank met its responsibilities by responding quickly and vigorously to events in order to underpin confidence and support the economy.

The Canadian economy continues to grow at a solid pace, consistent with the Bank’s outlook in the January Monetary Policy Report Update.

This is the second in a series of semi-annual reports designed to increase the transparency and understanding of Canadian monetary policy.

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

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.

I show how to combine large numbers of forecasts using several approaches within the framework of a Bayesian predictive synthesis. I find techniques that choose and combine a handful of forecasts, known as global-local shrinkage priors, perform best.