When we think about how monetary policy responded to the financial shock of 2008, we need to understand that there was actually nothing structurally wrong with the Canadian economy before the financial crisis hit. What effectively happened to Canada was that we were hit with a massive external shock.
The simple reality is that fiscal policy and monetary policy in Canada cannot change external economic conditions. Canada is a small open economy. More than a third of our economy is exports. We're heavily influenced by what happens outside our borders.
When the economy went into a very steep decline and a very severe recession, there was aggressive easing of monetary policy, taking interest rates down, with the overnight rate eventually reaching zero percent.
You could actually see the positive impact that had in terms of boosting domestic demand. The best evidence of that is the fact that, starting I think in March of 2009, we had the most unique situation. We had rapidly rising unemployment accompanied by rapidly rising home sales. We have never had that correlation in the past. It was one of the reasons forecasters like me got all of their housing market forecasts wrong.
This was complemented by the renovation tax credit to help boost the inclination of consumers to spend. Ultimately, what was fiscal and monetary policy trying to do? When private sector demand was contracting, they were trying to push the other way, to encourage Canadians to do things they otherwise wouldn't have done in those economic conditions. We can actually materially see that it had a positive impact in terms of boosting the economy and limiting how deep the recession became.
Now, it does create challenges, because I do think that household debt has become very high, but I think one of the lessons we have learned from recent experience is that we need to understand that monetary policy has to be accompanied by sound fiscal policy and sound regulatory policy. One of the core differences between Canadian and U.S. experience has been that the Canadian financial system has been better regulated, has taken less risk, and was less leveraged. So while we do have challenges around the fact that rates being low for so long has boosted consumer spending and household debt, which is an issue we're going to have to address when interest rates eventually rise, I would argue that the conduct of monetary policy was extremely sound.