Thank you, sir.
In terms of the job numbers, this month's numbers were very worrisome. Whether that's a one-month blip—there is a bit of month-to-month movement in these things—or the sign of something worse is not yet clear. But we have never in recent history had a jobs number like that without being in a recession. So that gives me serious concern.
I think the Bank of Canada has been ambitious, flexible, and aggressive in its response to the crisis. But I do think that its hands have been unduly tied by at least needing to give nominal—and I guess that's a mixed adjective in this setting—or at least a token gesture that it still is guided by the inflation target, which clearly wouldn't make sense. Core inflation is rising in Canada right now, driven by commodity prices, and that's one of the problems with inflation targeting. The labour market is not the only source of inflation.
So in this regard, I don't think the quick renewal of the mandate for another five years helps. But I am going to recognize the Bank of Canada's creativity and flexibility and hope it continues to exert that way.
There are many countries that do not have formal inflation targets where inflation followed a similar path to Canada, and there are many countries that have performed better than Canada in labour market terms. Some of the Asian developed economies and some of the European developed economies have had consistently lower unemployment rates. Whether that's due to different monetary policy.... I suspect it reflects a whole mixture of economic policy institutions.
In terms of the challenges in defining full employment, I'll certainly acknowledge that. I will say there are many challenges in defining inflation as well but that hasn't stopped inflation targeting from picking one of them and zeroing in with razor-like focus to the detriment of other objectives that monetary policy could follow.
In terms of measuring inflation, there are very important empirical and theoretical issues about consumer prices versus GDP deflators. Do you measure all items, or do you just look at core items? The major failing of the focus of inflation targeting on the CPI has been the failure to recognize asset price inflation and the dangers of asset price inflation. When you see a totally unsustainable bubble in asset prices, whether that's housing in the U.S. or dot-com stocks in an earlier era, that never enters into the monetary policy-makers frame when you have a uni-dimensional focus on CPI inflation, even though it clearly reflected credit conditions. You couldn't have an asset bubble without enormous growth of credit conditions, which is a monetary variable, even though monetary policy could play a role—a difficult role, but a role—-in trying to prevent those types of problems from arising.
Measurement difficulties are inherent whatever goals are chosen, and we'll just have to do our best to sort them out. But measurement difficulties have been a factor in inflation targeting as well.