Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 1 - Evidence - November 20, 2013

OTTAWA, Wednesday, November 20, 2013

The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:15 p.m. to examine the present state of the domestic and international financial system.

Senator Irving Gerstein (Chair) in the chair.


The Chair: It is a pleasure to start today by welcoming three new members of our committee: Senator Campbell, Senator Ngo and Senator Rivard. We are delighted to have you join us.

This is the committee's first meeting of the Second Session of the Forty-first Parliament. Colleagues, we are pleased to welcome Mr. Stephen Poloz, Governor of the Bank of Canada, as our first witness in this new parliamentary session. Governor Poloz was appointed the ninth governor of Canada's central bank effective June 3 of this year, after more than 30 years in both private and public sectors. Immediately prior to becoming governor, he was President and Chief Executive Officer of Export Development Canada.

An alumnus of both Queen's University and the University of Western Ontario, Dr. Poloz has given back to the academic community by teaching economics at both his alma maters as well as at Concordia University in Montreal. Governor Poloz was also a visiting scholar at the International Monetary Fund in Washington and the Economic Planning Agency in Tokyo.

While Governor Poloz may be a fresh face to members of the committee, joining him today is a decidedly more familiar face, Mr. Tiff Macklem, Senior Deputy Governor of the Bank of Canada, whom we warmly welcome as well.

To give the committee an update on the bank's monetary policy as well as projections for the Canadian economy, I now turn the floor over to Governor Poloz.

Governor, the floor is yours.

Stephen S. Poloz, Governor, Bank of Canada: Thank you very much. Good afternoon, everybody. I want to thank you very much for the opportunity for Mr. Macklem and me to be with you here today to discuss the October Monetary Policy Report, which we published almost four weeks ago now.


The bank aims to communicate our objectives openly and effectively and to stand accountable for our actions before Canadians. One of the best ways to do this is through appearances such as this one.

Allow me to spend a few minutes on the highlights of the report. I would like to flag some important changes that were introduced with this issue.


We have modified the report to explicitly capture the uncertainty that is inherent in our outlook. The goal is to present to Canadians a reflection of the evolution of the risks to our inflation outlook that are embedded in our policy, rather than simply comparing a snapshot of the current forecast with that of our previous forecast.

The picture is not always perfectly clear, and so we added new measures of ex ante or before-the-fact uncertainty to our five most critical projection variables.

We added rule-of-thumb ranges around the base case projection for the growth in Canadian and U.S. GDP, around Canadian total CPI inflation for the current level of the output gap, and for the growth rate of potential output in Canada.

With this, we are reminding ourselves — and, of course, those who watch us — that economic projections are subject to considerable uncertainty and are revised over time as new economic data become available. In effect, monetary policy formulation is more of a process of risk management than one of engineering.

In our policy deliberations, we must evaluate and assess all of these risks, whether they're positive or negative, and then use judgment to determine a balance among them.


As is customary in the October report, we reviewed the forecast for potential output. Due to lower-than-expected labour productivity growth in the past year, as well as the delay in the expected pickup in demand for exports and investment, the forecast for potential output growth was revised down slightly.

Since the report was published four weeks ago, the outlook for the global and Canadian economies has not changed substantially.

Let me remind you what we reported:

We expect the global economy to expand modestly in 2013. However, its near-term dynamic has changed, and the composition of growth is now slightly less favorable for Canada.

Uncertain global and domestic economic conditions are delaying the pickup in exports and business investment in Canada. This leaves the level of economic activity lower than the bank had been expecting.


While household spending remains solid and some indicators in the housing sector continue to rise, we still expect a gradual unwinding of household imbalances. The bank expects that a better balance between domestic and foreign demand will be achieved over time and that growth will become more self-sustaining, but this process will take longer than previously projected.

We are expecting investment growth to contribute to a rebound in the rate of labour productivity growth over the next couple of years. However, demographic factors, primarily the aging population, are expected to put a drag on the growth rate of trend labour input. This drag will largely offset the effects of rising investment. This is why we expect that the growth rate of potential output will remain fairly stable, at around 2 per cent over the next three years.


Real GDP growth is projected to increase from 1.6 per cent this year to 2.3 per cent next year and 2.6 per cent in 2015. The bank expects that the economy will return gradually to full production capacity, around the end of 2015.

Inflation in Canada has remained low in recent months. This reflects the significant slack in the economy, heightened competition in the retail sector, and some other sector-specific factors.

With larger and more persistent excess supply in the economy, both total CPI and core inflation are expected to return more gradually to 2 per cent, around the end of 2015.


Although the bank considers the risks around its projected inflation path to be balanced, the fact that inflation has been persistently below target means that the downside risks to inflation assume increasing importance. However, the bank must also take into consideration the risk of exacerbating already elevated household imbalances.

Weighing these factors, the bank judged, on October 23, that the substantial monetary policy stimulus in place remained appropriate and decided to maintain the target for the overnight rate at 1 per cent.

Since then, while some new data points have been released, our outlook remains roughly the same, as I mentioned.

If you have any questions about the recent data, Mr. Macklem and I would be pleased to address them, as well as all the other queries you may have.

The Chair: Thank you, governor. Your opening comments reflect interesting data content and policy. I must say, my question is on neither.

I would like to refer back, if I may, to an article in which you are quoted in the Report on Business, which attracted my attention and in which you said, ``My style is not to lead with what I think, but to sit back and let 'er go.''

Perhaps you could enlighten our committee a little on your style, and then I will leave the intricate questions to the members of the committee to pursue with you.

Mr. Poloz: Well, thank you for the question. I guess historically what I have established for myself is rather a style of leading from behind, which I think fits well with the kind of team atmosphere that we have at the bank.

The process of policy formulation involves a lot of experts in very specialized areas. In particular, at our executive table, the six of us, the governing council, represent a very diverse set of long experience, both in policy-making and outside.

And so I think the best way for me to capitalize on that expertise is, as you say and as the quote said, ``to sit back and let 'er go.'' Almost daily, we debate what the news means, what it means for us and so on, and then use that time to provide an opportunity for consensus amongst the group. That's working pretty well.

If Mr. Macklem wants to comment further on how that is working out, I would be delighted.

Tiff Macklem, Senior Deputy Governor, Bank of Canada: It is working very well.

The Chair: With that comment, we will start with Senator Black.

Senator Black: Thank you very much. Governor, welcome. It is great to see you. Of course, Mr. Macklem, it's always good to have you here as well.

My question relates to the advice that was tendered to Canada this week by the OECD, wherein there was a suggestion that perhaps between now and 2015 we need to be moving our interest rates up perhaps a little more aggressively than your comments would suggest. Are you able to comment on that?

Mr. Poloz: Well, certainly. The OECD isn't the only entity who will offer us advice, which is, of course, quite valuable. It is not just advice, but underneath it is a lot of rigorous analysis, which may have different strengths compared to our own. It is valid to hear that.

I guess it's important for us to remind ourselves that monetary policy, by its very nature, must be forward-looking because, of course, it takes time for its effects to be realized. Logically, that means that you don't rely on the latest information nearly as much as on a forecast of what you think will be true over the next six to eight quarters, which is kind of the frame within which we make those decisions, a bit like a hockey player must pass in front of the play in order for the other player to be there.

Forecasts, of course, can differ a lot from entity to entity or organization to organization because you use different models. It can also differ from person to person who is interpreting the models and who is interpreting the latest data. In other words, models and judgments differ.

We admit and have been very clear, as I said in my opening remarks, that our forecasts are not pinpoint numbers — decimal points don't have much meaning in this kind of context — but rather represent ranges of likely outcomes. We have to make sure that that uncertainty is not just acknowledged but is actually embedded in the decisions that we make, so we have to take explicit account of that uncertainty and make sure that we're comfortable with the policy that we set out, regardless of how things turn out within that zone, so it doesn't rely on a knife-edge outcome. Those differences can show up in the way that this has.

The most important uncertainty, as I have highlighted here, is how much of an output gap, how much capacity there is in the economy. We measure that in a variety of ways. The obvious ways are from the product markets and also from the labour market. Those two things give you two different impressions. We capture that uncertainty in our forecast. Also, the fact that inflation is not just where it is, it is below where we would like it to be. We start the question at a place that we consider to be behind the game, and we would like inflation to be higher to be in our 2 per cent target zone.

Those things together give us the judgments that we reached, as I have summarized for you. Obviously, they differ in a material way, according to those point estimates, from what the OECD is saying. That could be because their model is different; their estimates of the output gap can differ according to the model — and, of course, their judgments. I respect those. However, they're different from ours, and it is our job to reach that final conclusion.

Senator Ringuette: I guess I have two comments. One is my concern about the level of household debt and how all that relates to the continuous trade deficit that we have. Is it because the Canadian dollar is overvalued on the global market? That puts our export potential at too high a value to be interesting to markets out there. At the end of the day, the less we manage to export in the balance of things, the less money we have in our economy, and then you see the household debt being higher than it should be.

These are all the intricacies, but I understand your focus is on inflation and so forth. However, I'm really concerned about our continuous trade deficit and household debt that has gone down a little bit but it is not where it should be. Is it all based on the Canadian dollar being too high on the global market?

Mr. Poloz: Well, as I am sure you know, that's a very complicated question. If we retell the story of the last five years, we can always put the pieces together, and we will see if that gets you closer to where you would like to be.

The world went through this cycle — it is not even over yet — as a result of the bursting of the financial bubble that was mainly in the United States but went global. That caused a global recession that was highly synchronized, and global trade collapsed during that. As a trade-dependent country, Canada bore more of that fluctuation than other countries that are less dependent on trade, and that is particularly the case since the United States was at the centre of that. In that sense, some weakness in our external balance was inevitable in that cycle. It is proving to be a very long cycle — about a five-year cycle so far.

On the other side of this, in response to that weakness, countries used policies. In Canada, the folks that kept us out of a major recession were the households that responded and bought more cars and houses and borrowed in order to do these things. It was that cushion developed in that way that gave us a smoother cycle than in many other countries. As a result of this major global shock, we have these two things that happened at the same time: a deficit in our trade balance, which is a fairly recent phenomenon as it is only about four or five years; and the off-set, if you like, for our GDP was extra spending, advancing purchases of homes and so on and taking on a debt in order to finance that.

That explains the data as we see them. I think the next question is what happens next. One of the things that happened along the way was the Canadian dollar did go up through that period because growth stayed strong in commodity-intensive parts of the world and kept the price of oil and other commodities stronger than normally the case would be in a global down cycle. That combination gave us these outcomes, but that doesn't mean that this caused this, caused this, caused this. They're all symptoms of one bigger thing.

Where we go now, we expect to see the world continue to heal. Trade globally will pick up, in particular our trade with the United States, which is so important to us. Exports will become a bigger share of our growth here. Meanwhile, households, having done all the heavy lifting during the last four years, are ready for a break and will gradually pay down some of that indebtedness, especially as new jobs create new incomes.

We believe that all those things are on the verge of a healing process. It may take a couple of years to do, but our forecast is that all those things that you are concerned about are in the process of improving.

Senator Ringuette: How can you explain — and you just mentioned it — the financial crisis that started in the U.S. and spread around the world? At that time and since, our Canadian banks were and have been making record profits while households have record debts. I find that to be a major imbalance. I don't know if it's because we should have more financial institutions to provide more competition in the system so that certain abuses of practice that I see would be levelled out for Canadian households and the small and medium-sized businesses too that are bearing the crunch. As you said, they have picked up and maintained a certain level of growth in our economy while the financial sector, including during the last quarter, has made record profits. It is unbelievable.

Can you explain that phenomenon?

The Chair: We are running out of time. The governor won't have enough time to respond to you. I'm going to turn the question over to him.

Senator Ringuette: Maybe he would like it that way.

Mr. Poloz: I'm happy to answer the question. One of the reasons we have had a better experience than many other countries through this piece has been a strong and conservatively managed banking sector.

The fact that the economy has maintained momentum, but in a different way than before, has been profitable to the banks, even though debt service for ourselves or for companies is the lowest it has been in our lifetimes. That combination just happens also to be profitable for banks; and I don't see it as some sort of distortion or issue.

Are there areas in the economy where financing is less easy to come by, such as in a small business or medium-sized businesses? That has always been true. It is not truer today because of this cycle than it was before it. We have a sector that still has some soft spots in it for certain sectors. That is why we have Crown corporations such as the BDC, FCC and EDC, to help fill those gaps.

That doesn't change the fact that we have benefited from a very strong banking system through this period. We didn't have to do any sort of bailing out while other countries had to do a lot of that.

Senator Ringuette: We seem to have some Canadian banks that have benefited from capital input, from Canada or in different ways in Canada and in other ways from the U.S. Federal Reserve.

Mr. Poloz: There were a couple of occasions there where liquidity was being provided everywhere in order to sustain or make the system feel secure, but it was not a necessary piece of work here in Canada.

Senator Nancy Ruth: Governor, welcome. I'm an advocate for making sure that women and those who are under- represented in Canadian society get their fair shake, so this is the non-risk question.

Anyhow, that's one of the reasons I support restoring our national anthem to gender-inclusive words, and now there is the issue of the bank notes. I know about Mark Carney's comments in August last year. I have read your reply to Merna Forster and so on. I am interested in your review of the bank note design in 2014, and I note that you are open to suggestions from all Canadians. I note, too, that you don't want individuals; you want collective action.

I'm going to give you a few so you've got them in your mind. One would be suffrage. Another would be the initiation of the baby bonus. Another would be the efforts of the home front of women during the First and Second World Wars, but the First World War for sure where the war could not have continued unless women had done more labour. Another would be the 1980s efforts around the Charter of Rights and Freedoms, especially in the equality section. Those are a few collective actions and there are lots more, from farm women, fish women, right across the board. There are lots of images to stick on your notes.

Mr. Chair, and governor, I would like to have the governor back before the committee in early 2014 for a meeting dedicated to the bank notes. I'd like to have you back when the report is done but before it's implemented so that we can have some input into it.

I would like you now to share the details of how the review is being designed.

Mr. Poloz: Okay. I think the important piece of background is that it is not a quick or simple task to redesign a bank note. That's a process. The ones we have just finished rolling out took eight years for us to design and then build out of new material, new security features, et cetera.

The actual images that are on them were decided after several hundred meetings across Canada where we sought a lot of input. We felt we were building a consensus around those things. Then we submitted our design ideas to the Minister of Finance, who approved them. Then we produced them, and now it's taken that much time to get them on the street.

We never stop, because counterfeiters never stop, so we continue to do our research on what the next generation of notes is likely to look like. There will again be a process of getting people's input on what images people might be proud to have in their wallets.

As I have said to Ms. Forster, I am delighted to have that input. I'm wide open to the idea of our finding images that mark some of these accomplishments, and some of them would have to do with women and their success and things they have contributed — absolutely open to this.

The process that you're referring to is a paper about the process, as opposed to the process itself, reviewing whether there are other things we should be doing to make sure that this next cycle we are better at it and that we've taken all the lessons learned from the past ones.

I'm happy to come back and talk about that at any time and very happy to have the input from all Canadians, including of course the 25,000 or so who have signed Ms. Forster's petition, which I have seen in my hands and reviewed, and I've reviewed the books she send me, which are entitled 100 Canadian Heroines and 100 More Canadian Heroines. So there are 200 case studies right there. I appreciate all this, but I hope people understand that we can't go out this afternoon and say, ``Let's have a new bank note.'' That takes a great deal of time for us to do, and it would be a consultation with all Canadians, as it was last time.

Senator Nancy Ruth: It wasn't last time, that's part of the problem. The Famous Five Foundation, which worked so hard to get Thérèse Casgrain and the Famous Five on the $50 bill, was not consulted at all. It came as a huge shock to them. That's why I'm raising this whole issue of consultation.

Mr. Poloz: It came as a shock that they were on the bill or not on the bill?

Senator Nancy Ruth: No, that they were removed.

Mr. Poloz: It's not removing someone from a bill.

Senator Nancy Ruth: I understand that, but that was one group that had a specific interest who had lobbied to get that image on to the bill, and they were never consulted when it was being removed. My issue is, in part, whom do you want to contact? Governor, I'll tell you, I would be very happy to help you.

Can I ask a question about the aging population then?

In your speech today, and also on page 19 of your report, you observe that Canada's aging population is creating a slowdown in the growth rate of trend labour input, which would largely offset increase in labour productivity. Can you elaborate on the effects that Canada's aging population is going to have on our economy in the shorter term and in the longer term then?

Mr. Poloz: Yes, I certainly can. We all know about the baby boom generation and what age they are. I happen to be one of them. As that bulge in our population works its way through, what we get is a tendency for labour force participation overall to decline. The peak in labour force participation so happens to have been about five years ago. It happens to be just about before the crisis hit, but that is steadily declining, and it leads to a little confusion for some people because they would believe perhaps that one of the things that will happen as we get back to normal, post crisis, is that we will go back to that peak, and we will not. If we did, we would get a much bigger kick in the productivity, the output that was potential for the economy.

What we foresee is that companies are about to engage in a stronger investment path and that this will add to productivity significantly, but that add will be just enough more or less to offset the gradual decline in labour force participation that we are referring to.

These constitute let's say headwinds. They're gentle headwinds for the economy. We are talking about 2 per cent instead of 2.4 per cent or something like this. Nevertheless, it's something that economists take very seriously because 0.4 for a long time will add up to a lot.

That aging thing is something we have to take into account when calculating how much extra capacity there is for us to expand the economy, because that capacity is the thing which, once it gets close to zero, helps to develop inflation pressures.

Senator Nancy Ruth: I come from the inner city of Toronto, so I'm aware of seniors doing their bit at McDonald's or wherever they are to earn either under or over the $3,000 tax threshold and so on. I listen to grandchildren of friends of mine who are in part-time jobs with no benefits or almost no benefits. With all these things decreasing, it seems to me that although the government has done a fair bit to move poverty to a lesser degree, we are encouraging by some of our actions, certainly with elderly women and youth, huge poverty, huge inability to access the entrepreneurial market to get on. I hope they don't have credit cards — that's what I hope — because I don't want to look at their debt ratio. It may be more than 165 per cent. I don't know whether it is or isn't.

It scares me to watch corporations outsource. It scares me to watch corporations hire contractual labour only. I question whether we're not in the long run doing a disservice to the country. I don't know whether you have any comments.

Mr. Poloz: I, too, know people who have decided to stay in the workforce longer than they originally planned. We know, for instance, there are more self-employed people, for example, in the consultant business post retirement. The reason is that their retirement fund is not as much as they'd hoped it would be or they may not have one, as you mentioned. I understand this.

While we all know examples of people like that, the big statistics don't lie: As predicted, the aging of the population is reducing. The supply of labour at the margin is not a major headwind but is something we need to take into account. I don't have a quick answer for you about those fundamental issues except to say that given what we've been through, we can actually count ourselves quite lucky.

I think it's because we had a very prompt and coordinated policy response at the G20 level, which all countries went through. I get letters from folks asking me why I keep interest rates so low — it's hurting their retirement if they don't have enough interest income. I ask them to think about what their retirement might have looked like if we hadn't had this policy response and how deep the hole might have been then. It is important to keep that in mind. I realize it is a counterfactual and it's hard to believe it could have been as bad as all that, but it easily could have been as bad as all that, such as a 1930s type of outcome. We had all the ingredients, but policy this time around was much stronger, better and more coordinated than it was in the 1930s.

We have to bear in mind that potential downside and say, well, thank you for doing a pretty good job; but it's not perfect.


Senator Hervieux-Payette: Mr. Poloz, welcome, and especially, congratulations on your new position. We are counting on you to steer the ship safely, at least during your mandate.

In your scenarios for the next two years — for the second one particularly — when you said that the GDP will increase by 2.6 per cent, did you take the free trade agreement with the European Union into account? Even if its implementation may take some time, will it have an impact on the Canadian economy? Will the fact that Canada has ratified that agreement with Europe mean that there will be value added to the national revenue?

Mr. Poloz: You are asking whether the projected growth of 2.6 per cent will create demand on the labour market. I am certain that this will increase demand for labour significantly.

What we do not yet know is the impact on the unemployment rate because of other trends, and as I mentioned, the labour force participation trend. That is why unemployment is not an ideal indicator to assess the success or lack of success of that policy. But we see a process which will bring about a very gradual and positive increase in the number of jobs.

Last year, we saw that salaries for these new jobs were higher than average. That indicates that the jobs that are created are better jobs. This brings income into the economy and changes the dynamics of the debt, by the same token.

Senator Hervieux-Payette: Do you think that the value of the euro as compared to that of the Canadian dollar benefits Canada's exports?

Mr. Poloz: That is not really an important factor for our businesses here. Most of the businesses I am talking about consider this factor to be a temporary one. They tend to take more time to decide whether they need to keep a client, to treat him normally and absorb the rate of exchange fluctuations in their profit margin, for instance.

It is not really clear that this lowers exports, but it can influence the bottom line for businesses. It all depends on the situation.

Senator Hervieux-Payette: I was not talking about imports, but about exports. Currently the euro is very expensive. I bought some recently and they cost more than $1.40. So I think that for a Canadian product versus a similar European product, unless there is a change in the value of the euro, this should benefit Canada, which is supposed to have better access to the European market. Would you say that is the case?

Mr. Poloz: First there is access to markets with CIDA, for example. That is a basic tool for businesses. But at the same time, there is the issue of finding clients, and when you have a contract with one, the business has to know what it is going to do to react to exchange rate fluctuations.

This may translate into a price increase which may reduce the chances of success, but the business must absorb the fluctuation into a lesser profit margin, if it thinks that this is a temporary situation. The approach changes from one business to another. You cannot generalize.

Senator Hervieux-Payette: My last question is about indebtedness, which is a matter of concern to us all. When students go to university, they are offered credit cards even if they do not have jobs. I am also thinking of welfare recipients, who also have access to credit cards. These people do not pay down the principal of the debt, they only pay the interest. They are probably the best clients for our banks.

Then there are personal loans to purchase a house. You have to be able to make the basic downpayment, and then afterwards qualify to have access to a loan from the Canada Mortgage and Housing Corporation. Are you discussing ways of stopping the exploitation of low-income people with the Minister of Finance?

Rich people do not use this type of thing. The people who do are low-income people who do not have much money. But when the Bank of Canada increases interest rates, these people are going to have some serious problems with their personal loan which is generally spread over five years, aside from their mortgage loan with a 25-year amortization.

Are you considering any other measures aside from your interest rate? Since we are not headed toward a 10 per cent rate tomorrow morning, are there other suggestions being made to the Minister of Finance, so that we can stop this hemorrhage and provide these people with some security for at least the next five years?

Mr. Poloz: I will start to answer your question and perhaps Mr. Macklem will have something to add. It is true that the cost of servicing debt right now is minimal. But there is always the risk that these people will have too much debt, and will not be able to deal with this increase in interest rates, which seems inevitable.

Banks and other lenders are planning to examine young people's incomes to see whether they would still qualify if there is an increase of two or three points in interest rates.

Generally we find that people are very conscious of these things at this time and credit scores are higher than before the crisis.

M. Macklem: I would like to add something. Clearly there are a lot of players and they have responsibilities. The responsibility begins with individuals who must be aware of what they are doing. Banks have the responsibility to make sure that if they lend money, people are able to reimburse the loan, and not only at today's very low interest rates, but in the future, when they may be higher.

It is the responsibility of The Office of the Superintendent of Financial Institutions of Canada to supervise banks, and it has introduced new guidelines for banks to ensure that they are more rigorous in assessing that capacity to repay. This is in place now.

The other important aspect, and this is not one of our responsibilities in the context of monetary policy, but it is important for the system, is financial education. I know that the minister has created a group to examine that. It is a good idea that young people — everyone, in fact, not just young people — have a good understanding of financial decisions.


Senator Tkachuk: Welcome, governor. Congratulations. Good to see you again, Mr. Macklem.

I have two questions. One is on the interest rate. There have been a number of questions around the table about interest rates, credit cards and all the rest of it. Japan had a low-interest policy, and I think that the banks in the U.S. and obviously here think that a low-interest policy will stimulate the economy. In Japan, they have had this policy for 15 or 20 years now, and it hasn't done them a lot of good.

We have been continuing this policy in concurrence with the United States, and the United States has given no indication — although they talk about it — that what they call monetary easing, which is printing money, is going to end.

We have been doing this now for five years. How long can we continue this? Japan is an example where it doesn't work. What examples do we have in the world where it does work?

Mr. Poloz: Well, fortunately, we haven't had to do this before, and that's because we never had a shock as big as the one that we had in 2008.

If we do go back and take a look at history, back in 1989-90, Japan had something pretty similar. There was a financial bubble involving the stock market and real estate — the banks were heavily implicated — and when that bubble burst, there was, in effect, a lot of bankruptcy, which was not cured. It was kind of left there to try and work off as opposed to just wipe out.

It is not since the last eight or nine months that we have actually seen Japan move to the sort of policies that the textbook says you should move to in a situation like that. They have been very cautious. They had a low-interest rate policy, and it kind of stabilized the economy, but it didn't really generate growth. It did stabilize, however.

I spent time in Japan during that period, and it is an economy that did not flourish but managed, and that's important because it could have been much worse.

Similarly, the situation we have here — in fact, the entire world was drawn into this bubble — the way I characterize it, the bubble breaks. Underneath the bubble there's a crater, and that crater is the same size as the bubble. It is big. It took seven years to build that bubble. The imbalances that lay behind that bubble are big and will take a long time to repair — roughly speaking, about as long as it took to build them.

So something like that suggests we have more time to go. It is not really an accident that we talk about a couple of years from now we think we're getting closer to home because that will be seven years since this all began.

To finish the metaphor, it would be that central banks used these special arrangements. They were written into our textbooks back in the 1930s and we thought, ``Well, we will never have to do that because we're smarter than that.'' And it just turns out that on average, for all that time, central banks and fiscal authorities have been smarter than that; they have managed economies better than back then, but this shock was simply too big.

Once you get interest rates down as low as they can go, which is what happened in the United States and Japan, that's when you pull out these other techniques, which you refer to as printing money, but they are extraordinary liquidity provisions, bond-buying programs, forward guidance, those types of things. Until this came along, these were theoretical things, and now we see them in action and we have had enough time to analyze them, and we can see that they have had a meaningful effect in the U.S. economy. I have every reason to think they will have a meaningful effect in Japan. Fortunately, we have not had to resort to that here. We have had a cushion throughout, and part of it is the story I told before.

So the answer to your question of how long can we do this goes back to how big is the crater. If you think of that crater as truly a crater, it is as if we have filled it up with liquidity so you can row your boat across it. When we get across, then we can get out of the boat and go back to normal, but until then, we have to keep the crater full of liquidity. Otherwise, the counterfactual becomes a risk for us again.

That counterfactual would include a stagnant economy, possibly for a long time — I'm talking globally now, not necessarily ourselves — one in which there would be substantial risk, not just that inflation would go lower but that it could become deflation. When you have deflation — we all have some form of debt, and while your wages are falling along with prices, the value of that debt is going up relative to the work that you do every day, and that's where Japan found itself.

So with the monitoring authorities around the world — we talk about this a lot in our meetings in Basel — we feel we did a pretty good job. We avoided that, and we are on track to a healed global economy. I hope that gives you more background. I could talk about this all day, but I shouldn't.

Senator Tkachuk: Well, I can't.

Mr. Poloz: I understand.

Senator Tkachuk: Not being an economist, it is a little difficult. Thank you for that.

I have another question. Mr. Corcoran wrote an article in the National Post. He was talking about Mr. Greenspan's latest book — and he quotes from it — about the economic models in place in 2008, and he said they failed miserably. Mr. Greenspan wrote:

It all fell apart, in the sense that not a single major forecaster of note or institution caught it. The Federal Reserve has got the most elaborate econometric model, which incorporates all the newfangled models of how the world works — and it missed it completely.

I'm not necessarily a believer that we could ever predict the beauty of the free enterprise system; when people screw around with it, it all falls apart, and it sends a signal saying ``don't do that.'' But at the same time, could you comment on what Mr. Greenspan wrote? Can you tell us what the bank can do — besides watching it — to give people signals that we're heading into a position that may cause us a problem?

Mr. Poloz: Alright. I'm very sensitive to that issue. I was fortunate to have dinner with Mr. Greenspan not too long ago and to talk about that very interesting shift in his thinking through time.

The fact about models is that they are abstractions and they're meant to capture average behaviour for us and to give us a certain amount of predictability. But we have to treat them with the respect they deserve, which is that they will never tell us exactly what is going to happen. It goes back to my first question today, which was around what the OECD had to say. You shouldn't be so precise about these things.

The models tell us one thing. By the time we got to around 2006-07, most people agreed there was something wrong and we didn't really know what the fallout might be; but we agreed that we couldn't explain what was going on. That tells you, first of all, that there's a bubble because none of your models can explain a bubble. That's what a bubble is. Then you say, well, that's got to go away. Well, how do you let the air gradually out of a bubble? You cannot, and when it explodes, it can leave the crater behind, as we have discussed.

The models that we typically use are not very good for explaining bubbles. That's the definition of one, and they're certainly not very good afterwards because that gives rise to process of adjustment that is not captured in average behaviour.

I have talked a lot to our people about that. We can't live without models — that's how we organize our data and our discussions. I encourage people to think of models as a source of questions as opposed to answers. How we deal with that is we continue to invest in our understanding around those edges so that we have alternative models or models that explain residual behaviour.

If you use a model that says it should be this and you know it won't be that because the world has changed in this way and this way and this way, it gives you some leads on how to modify your judgment. Monetary policy is not a scientific thing based on a model. We use all different kinds of models and insights, and we try to form an average kind of judgment. We hope thereby to manage those risks in a way that gets us home.


Senator Massicotte: Welcome, Governor and Mr. Macklem. Congratulations, Mr. Poloz, on your appointment. You have a very important responsibility, and we wish you well.

I am going to continue in the same vein. Two or three months ago — as a follow-up to your statement — you made some comments that were relatively optimistic concerning the Canadian economy, stating that there was a lot of investment potential in the private sector. The newspapers even reacted with a great deal of interest concerning the fact that you were that optimistic, and I am sure that a lot of Canadians and consumers reacted by making some large purchases.

However, six weeks later, your optimism had vanished. And now, as you say in your report, your position is to maintain an incentive and support the Canadian economy, but in a much less optimistic way than two months ago. That is why now, in your report, you are trying to include risk in your projections.

We read the statements made by the Governor of the Bank of Canada very attentively, as a matter of course. The Bank of Canada has a very good reputation, and is known as one of the better research bodies in the entire world, after the FED and the Bank of England. But I am beginning to wonder — and I think I am not alone — about your projections, which have not come to pass on a regular basis over the past few years — and this is true also for all of the indicators in the world — and the fact that there are constant updates in your forecasts; I am beginning to wonder if it is even worth reading the projections.

Perhaps we should simply say that no one knows, and not grant as much importance to your statements. It is like hockey analysts; after the fact, everyone knows the perfect solution, but those who can predict the results of the hockey game accurately are rare. Is that your case? They are interesting, like a good novel, but are your projections really scientific and credible?

Mr. Poloz: Thank you, that is an excellent question. You are talking about my speech in Vancouver, where I talked about long-term forecasts. In June, we talked about the current situation and what the long-term destination for our economy would be. We talked about the process of increasing interest rates, which would be gradual and further down the line. In fact, it was in our press release at the time; we mentioned that we would eventually see an increase in interest rates, a normalization of those rates.

The purpose of our speech in Vancouver was to describe in greater detail the components of that normalization and the speed at which it would take place. It was an analysis with a much longer horizon than usual.

At the same time we obtained frankly disappointing data regarding exports, data that showed a lower growth than anticipated. Given that it was necessary than to say that we understood our destination, but that it was obvious that even if we could see the components that were present, they were not sufficiently offset by other factors, given the lack of exports particularly, and the investment that entails.

The story is exactly the same, to us, in both cases; in one case, the destination was the focus, but our analysis now is that we may reach that destination a year later than originally expected.

Senator Massicotte: In summary, journalists are to blame for having misinterpreted your comments.

Mr. Poloz: One or two perhaps, but it was not generalized.

Senator Massicotte: You said afterwards that we will eventually see growth and an increase in interest rates. That is certain; just as we are certain that one day we will all pass away.

What does a 2.3per cent or 2.8 per cent increase in the growth rate mean? Should we now think that it will lie rather between 1 per cent and 2 per cent? Because if one looks at the number of corrections the Bank of Canada made over the past five years — there were continual corrections. Perhaps you should simply say that no one knows.

Mr. Poloz: You are right. We were disappointed repeatedly during the process, and that has been going on for about three years. Today, I would say that we do not really understand why. What we see is that there is a constant decline in our export sales to the United States. The level of demand from the U.S. is such that we have fewer exports than forecast in our models, and that is true of every quarter. We are looking at a $30 billion gap now, which has increased quarterly.

What our forecasts show is that eventually the growth in our exports will almost equal the growth in the American economy, but this gap will remain and will be permanent. We do not really know why; there are various possible explanations. For instance, we lost businesses during the recession; around 9,000 exporting businesses during that period. That represents 20 per cent of the total number of exporting businesses. That could be one reason. A second reason is competition, since the value of the Canadian dollar has increased; that too has contributed to the situation and is in our mandate.

What I am talking about is the part that we cannot explain. We are conducting research on that currently. There is another, more conservative hypothesis, and that is that this may be a permanent effect. Perhaps there will eventually be good news and we may regain those clients; it may be a matter of the distribution of growth in the United States. Up till now it has been somewhat concentrated and not present in all sectors. For those reasons, I have to admit that we do not really know. Mr. Macklem is an expert, and he has something to add.

Mr. Macklem: I am going to give you a somewhat more general perspective. We agree entirely that there is a lot of uncertainty. We do not know the future, and that is something that must be taken into account when decisions are made on monetary policy.

As the Governor has just pointed out in his opening remarks, in this report, we try to cover that aspect better. We introduced a target range in our projections to indicate that they are not perfectly accurate. There will always be new information, there will always be revisions to our projections. So in order to provide a target range, we try to provide a normal benchmark for those revisions.

Moreover, at the end of the report, we refer in detail to the main risks involved in making our projections. In making our decisions, we try to balance the risks. The decisions are not entirely based on a forecast. There is a basic forecast, and there are risks involved, and we try to establish a balance. We take all of that into account when we make our decisions.

Senator Maltais: Governor, welcome and congratulations on your appointment, and welcome, Mr. Macklem. The former governor came to see us quite often, and that is an excellent habit.

My colleagues put questions to you about Canada's monetary policy. You know, out of the 35 million Canadians there are now, there are certainly 30 million who understood nothing of what you said, which is normal. However, to those people, you are the key man in Canada. You set the monetary policy and you set the interest rate. To these people, you are far more important than you know.

However, there has to be an opportunity to speak to them. Today, this hearing is televised, and so we are giving you the opportunity to speak to Canadians.

This morning, we heard about the fact that property in Canada is overvalued, by 27 per cent in Quebec and even a bit more than that. You know that in property assessment, the pension funds of middle-class people who earn between $40,000 and $65,000 a year are often included. What they can accumulate throughout their life is their pension fund.

This morning, this was bad news for those people; their pension fund just got devalued by 27 per cent. Aside from the Great Depression of 1929, not much has happened that was more unpleasant than this morning's news for all of the Canadians who have a mortgage, and who just learned that their house, instead of being worth $300,000, is now only worth $225,000.

What would you have to say to those people today?

Mr. Poloz: I would like to reassure them. I would say that the situation is improving and that our economic future depends mainly on conditions in the United States. This never changes. The American economy is beginning to grow at a more rapid rate. Indeed, growth is higher than it seems, because fiscal effects are currently reducing the GNP statistics. The private sector is in a good place; it has made several adjustments. And so, I am confident that growth in Canada will take place, thanks to this development in the United States. This will balance our economy and make it more renewable.

Property assessment is a more personal matter. Obviously the purchase of property has given our economy some momentum. It was very important to have a cushion in this situation. But at the same time, we recognize that this is not a situation that can be sustained, and the adjustment will take place gradually. At this time, we expect a soft landing. Given that situation, it is as though all of the analyses were on board a ship. It leans this way and that, and there are waves that make it heave and pitch; however we are heading for the harbour, and that is exactly what we mean by a soft landing.

Certain indicators are stronger than forecast, and others are less so. I must admit that I am not entirely sure, but we feel that the situation has just about settled. We predict that things will improve without a major price correction. That remains a risk for the economy, a vulnerability we acknowledge, but we think that for that to happen, there would have to be some kind of external shock. We are not in a bubble, in the sense that it will correct itself. But if there is some kind of turbulence from the outside, another analysis will prevail.

Senator Maltais: This is Wednesday, November 20, and it is 5:25 p.m.; you are speaking to about 15 young couples between 25 and 35 years old, with an income of $65,000. They ask you: ``Governor, will 2014 be a good year to buy a home? We have a little money.''

What do you answer them? They do not believe the bankers, but they believe you.

Mr. Poloz: It is not my role to give specific advice like that, but I would say that the macroeconomic situation is stable enough and that it will improve even more in the next 12 months. However, you are not asking the question as an investor. I am not going to make any predictions without knowing the value of the property in 12 months. That is a very personal and complex question. It depends on the market.

If they want to become homeowners, I would tell them that the cost of mortgages is ideal, and that the economy is going to improve during that period. That is our projection.

Senator Maltais: Have the declining mortgage rates which we have seen for some years not contributed to an explosion in the cost of homes? Many people bought properties they could not afford, for $300,000, $325,000 or $400,000, depending on where they were in the country. As soon as the interest rates increase, these people will not be able to carry that burden.

If the economy slows down, would the lower interest rates not be a liability?

Mr. Poloz: You have identified a risk for the economy. As I mentioned before, lenders have been circumspect during that period. The Bank of Canada has issued warnings, for close to three years, that people have to prepare for interest rate hikes. That fact is inevitable, even if we do not know exactly when it will happen. It is true that last year, it was postponed.

At the same time, in my conversations with the banks' representatives, I was told that when they issue a mortgage, they look at qualifications. Today, credit ratings are much higher than five years ago. So buyers are not only qualified, but well qualified. Secondly, they redo the calculation with an interest rate that is three points higher, and determine whether buyers still qualify. Thirdly, people choose less expensive homes, with smaller mortgages. Consequently, I think that the risk is well known. Does this mean there is a risk of zero? Certainly not.

When we see interest rates rising, it is in the context of a stronger economy, and for other reasons which may be linked to the United States, to exports, to more stable, less precarious jobs, et cetera. It is in the context of a stronger economy that we will see interest rates rise.

On the macroeconomic level, certain individuals will fall into the trap, without a doubt. However, that is not a major risk factor for the economy.

Senator Maltais: The governor will have given all the young couples in Canada the best advice they could have received, and it was free.

Senator Rivard: Governor, welcome and congratulations on your term. I congratulate both of you also for your knowledge of the French language.

Mr. Poloz: Thank you.

Senator Rivard: I would like to know whether it is true that the robustness of the Alberta oil industry puts such upward pressure on the value of the Canadian dollar that this has a very adverse effect on exporters, on manufacturers and all those who produce metals, such as steel mills. This is sometimes referred to as the Dutch disease. Do you share this opinion that many people hold? Is it a myth or a reality?

Mr. Poloz: As with all myths, there is a grain of truth there. Let me summarize: it is true that during this period, we have seen a worldwide increase in the cost of oil. It was a type of blessing for Canada, given that we are net sellers and not buyers of that product. It was like a gift. Everyone wants to pay more for a product that we sell.

One of the consequences, not only in our models — this is the usual case — is that since Canada is an oil producer, the exchange rate is sensitive to that fact. And the exchange rate increases for that reason alone. That is why during this global recession, we saw an uncommon situation. Normally, we see the exchange rate go down; it is like a type of cushion. However, this time that was not the case, because the big oil producers stayed very solid. Consequently, economists agree to say that this is the exchange shock or terms of trade. The value of our exports is higher than before.

This phenomenon did not only occur in Alberta, but also in Newfoundland and the east, and in Saskatchewan and British Columbia. Several provinces produce oil. This injection of income has positive effects throughout the economy, and that is important. Engineers, for instance, come from everywhere. They work on these projects. Other materials come from everywhere in the economy. So the effect of this influx of income is very generalized.

That is why we do not really use that term ``Dutch disease,'' because that analysis goes back about 40 years. The situation was different then. Nevertheless, it is true that that combination is an added stress on manufacturing enterprises. That is certainly the case. We were in a major recession and we saw a real drop in international trade. It is difficult to separate out all of the effects, but all of the factors seem to have contributed to that. Today we can see that the net result of that is that given all these factors and the high price of oil, this is a gift to the entire country.

Senator Rivard: It is not a myth; there are advantages to having a strong oil industry. Everyone benefits, I share your opinion, and I am happy to hear it.

In one of your presentations, you referred to Mr. Greenspan, your American counterpart. Do people at your level, governors of the central banks, hold meetings like those of the heads of state, comparable to the G7 and the G20? We know that at the end of January every year, several heads of state meet in Davos to talk about the economy. Are there formal or informal meetings like those in your field?

M. Poloz: Yes, that does exist, formally. Six times a year, the governors of the central banks meet in Basel, at the Bank for International Settlements. We have several meetings in that context, both large and small.

Canada is a member of the smallest group. It used to be the G10, but it is bigger now. I have conversations with my colleagues on a regular basis. I do not hesitate to contact them if I have a question or something to share.

We also attend G7 meetings where the ministers of finance are present. The G20 is a larger group, naturally. It is a meeting of the governors and finance ministers of 20 countries.

We see more emphasis on developing countries. There are several opportunities to talk about that. When I went to Washington, I shared an informal meal with Mr. Greenspan, and it was a privilege.

Mr. Macklem: The governors are not the only ones who meet. There are also meetings at other levels in the institutions. The forecasters also have meetings at the G7 and G20s. As well, people with other types of responsibilities have meetings. The governors are important, but this is team work.

Senator Rivard: With your permission, I would like to make a comment. Our colleague Senator Ringuette often talks about the excessive profits of the banks. I am also thinking that there are a lot of pension funds and that if there were more investment by the banks in our public pension funds, the actuarial deficit would be much lower than it is presently. That is my opinion, and I wonder if you share it.

Mr. Poloz: Technically speaking, that is true. The performance of that sector has been excellent. Yes, that is true.

Senator Massicotte: Will it continue?

Mr. Poloz: I do not know.


The Chair: Colleagues, that completes our questions in round 1. I have two senators with questions in round 2.

Senator Black: Thank you, Mr. Chair. My question has been answered.

Senator Massicotte: Recently, yesterday, there was a report by Fitch, and last week by some expert in England, saying that the average value of our houses in Canada is overvalued by as much as 25 per cent to 35 per cent. This leads to the question. They say there will be adjustment. I guess there will be in time. How quick is the adjustment? Could there be, and what is the risk of it, a significant decrease in housing values, which obviously would materially affect the consumer's ability to spend and would materially affect our economy? How high is that risk? Do you agree with that assessment by Fitch and so on?

Mr. Poloz: Well, in the sense of identifying it as a risk, we do the same in both our Monetary Policy Report and our Financial System Review. We identify the imbalances in the household sector as having built up during this cycle. That's one of the elements of it, that part of it has come through extra indebtedness for households; another part has been that it has pumped up prices, kept them solid, while in other markets, for example, the United States, prices went down a great deal during the same period of time.

In the sense that it is identified as a risk, I have no quarrel with that. That is true. Looking underneath, as I was saying before, the question would be this: What might actually cause that risk to be realized? You think about things such as maybe another global shock like the one we had in 2008, where unemployment in Canada rose again. That would be the sort of thing that might cause people to stop buying houses and prices to correct downwards. That's a possibility, but, as I said, that's not our forecast. Our forecast is a very conservative one, and we think the situation will continue to improve.

That's what a soft landing looks like. It worries you the whole way, actually. I think we have to get used to that feeling that until, say, two years from now, when things have come more into a balanced place, we're always going to be worried that something like that could still happen.

How big a fallout would it be? It depends a great deal on where it is, if it's concentrated, if it's generalized or not. People do these calculations and say the housing sector is overvalued by this much or that much. We can tell by certain metrics it looks expensive, but if we look underneath it, which markets are expensive, many of the ones that you mentioned are the ones that have been expensive my whole life. You wonder how much is it because there's extra immigration coming into Toronto. You've got kind of a quasi-cash market in Vancouver. It's always been expensive there. So how much of that is a general macro issue versus a more localized phenomenon is hard for us to put our finger on, but we agree it's a risk and it would slow the economy down if it were realized. We will be doing our utmost to keep the conditions in a positive way so the soft landing remains possible.

Senator Massicotte: Your projections basically say it may result in overvaluation, but you're saying stagnation of prices without any shocks.

Mr. Poloz: Yes.

Senator Massicotte: What's the probability of that being accurate?

Mr. Poloz: Of it being adequate?

Senator Massicotte: Accurate. Are you 85 per cent sure of your opinion or are you only 5 per cent sure?

Mr. Poloz: To be honest, as a forecaster, it would be highly unusual to be as much as 85 per cent certain.

Senator Massicotte: So 75?

Mr. Poloz: Something in the sort of 60 per cent to 80 per cent range is your kind of rule of thumb. If you get below that, then you shouldn't really be making a forecast. But I think, to be honest, the zone of ignorance around these things is pretty big. Because we've gone far away from the normal determinants, so it's not like we can use our model and say, ``Well, it's really close; it's only this much of a potential error.'' We see building to be pretty lined up with demographic demand, so that's one thing. We haven't had significant overbuilding. A couple of markets maybe a little bit more than you'd expect, but it's because it comes in lumps and it takes time to finish.

It's not just using our models. We talk to lots of people. I spend a lot of my time just out talking to people, and people in that business will tell you, ``Well, demographic demand must be high, because I've got people lining up to buy these things and I can only build this many. I could build more, actually, because there's more demand than that.''

The underwriting, as I said before, has been extremely strong. So that gives us assurances, on the one side, to counteract that as a risk rather than it being a generalized issue for Canada. It doesn't mean it's zero as a risk. I can't say that.

Senator Hervieux-Payette: Maybe I should go back to when you were talking about productivity and investment in companies in new technology, meaning less manpower. I guess we've been saying that in this committee for years, that there are companies who are slow to invest in new tech. New techs, most of the time, say you start with 50 people before and 10 people after. So when we talk about aging, if you put these things together, the lack of manpower, there might not be a lack of manpower if we are modernizing our enterprises.

I would like to add, for your comments, the immigration. We can have a very high-qualified immigration coming from Europe and we can have, I would say, very low-tech immigration just to work on construction sites and things like that, but with not necessarily the high skill.

I'm wondering: We hear that the government, on the one hand, is going to reduce the quota of immigrants. We hear, on the other hand, that there is a shortage of skilled manpower; and, on the other hand, that the aging population will, of course, not stimulate as much the economy. How do we reconcile those — the aging, the immigration, the new technology — to have a picture of where we're going? Sorry for the last question.

Mr. Poloz: Yes, I certainly am very tempted to hand that over to my colleague, Mr. Macklem, because it's a very complicated question. Hang on now. I'll just give it a little shot.

I think what we have to maybe get a little bit more of a sense of is where most new jobs come from in a growing economy. The answer is not from existing companies but from new companies. What we've been living through is about five years now where, on a net basis, there has not been the growth in new companies that we normally expect to see. We have no problem understanding why that would be. It's been a very challenging environment. But in an economy like ours that usually is growing 2 to 3 per cent on a trend, you can count the number of companies every year and you'll find, sure enough, there's more than 2 per cent higher population of companies every year. That's true for the U.S. and for the U.K. also. That process stopped in 2007.

It looks to us, although the data are shaky, that it has just recommenced, which is a really good sign that the actual kind of self-sustaining, natural growth process may be starting up again. That needs to be fuelled not just with high- tech jobs. It's also ordinary jobs. It's all kinds of jobs. And since they're brand new companies, most of the training happens on the job. So you need basic skill sets, of course.

Can I make sense of all of those things? Probably not, okay? It's a fact that companies will tell you, ``I can't find this,'' so there's a skill shortage. Other companies say, ``I can't find enough of these,'' and it's not necessarily a skill. Yet we have unemployment rates in certain regions.

I know Mr. Macklem has given a speech recently on this, about how our actual process of adjustment in Canada has improved over the years, so we are being more flexible as a labour market.

All those things make us encouraged. We just have to remember what we've been through and not expect too much at this moment in time.

Mr. Macklem: I want to come back to the issue of immigration and labour force. It actually links back to Senator Nancy Ruth's question earlier on.

Going back to that earlier question, as the governor indicated, labour-force growth peaked around five years ago. It was running around 1 percentage point. So even with no productivity growth, just by people entering the labour force we were getting 1 percentage point of growth. It's now about 0.8, and over the next few years it's going down to about half a percentage point.

Demographics are one of the few things that are highly predictable. We all know we will be a year older next year.

Senator Hervieux-Payette: Most of the time, but not always.

Mr. Macklem: It's worth emphasizing that while we know we're all going to be a year older next year — the demographics are predictable — there are things we can do, there are things that companies can do, to draw new workers into the labour force.

One source of new workers is immigration, and this country is built on immigrants, and it's an important source of labour for the country.

Getting back to Senator Nancy Ruth's question, there are other pockets of the labour force where we could probably raise participation rates. So you take older workers. Firms can put in place more flexible work arrangements that suit older workers better. The Aboriginal population is one of the most rapidly growing populations in this country. There are good moral reasons to encourage them into the labour force, but there's also, increasingly, going to be economic reasons.

Again, firms need to think about human resource policies and, more broadly, governments. Those are things well beyond monetary policy. So the more of that that goes on, those can offset to some degree, not entirely, the fact that we're all going to get a year older and aging is going to go on, and that will increase the potential growth of the Canadian economy. This economy can grow faster without inflation.

The Chair: Governor, senior deputy, this has been a most informative, stimulating presentation and discussion. On behalf of all of the members of the committee, I would like to express our great appreciation for your appearance today, and I can assure you we look forward to your next appearance before us. Thank you again.

This meeting is adjourned.

(The committee adjourned.)