We did some research for Industry Canada a few years ago looking at the appreciation of the Canadian dollar at that point. We looked at different scenarios of how the economy adjusts to these sorts of shocks. In one of the scenarios we did for them, we purposely made the adjustment mechanisms in the product and labour markets slower, and the result was that the full impact was 50% larger. For example, rather than a 1% negative decline from a 10% appreciation, it would be 1.5% or more. I think it was a bit more than that. So it's very significant.
There are only so many ways an economy can adjust. One way is that the exchange rate adjusts. Another way is that product and labour markets adjust. It's more painful for product and labour markets to adjust if they adjust slowly. Germany is a perfect example. They had a lost decade because their labour markets didn't adjust very quickly to the negative shocks that they experienced in the 1990s. The more flexible your markets are, the quicker they adjust. They reallocate resources from where they're not needed to where they're needed.