Speaking to the National Association for Business Economics in Washington D.C. today, David Dodge, Governor of the Bank of Canada, had nothing new to say about the prospects for the economy.

Dodge simply reiterated his conviction that the economy is indeed on the way to recovery. “As I said in my last speech in Paris earlier this month, more recently, there have been encouraging signs of a turnaround in the world economy, and the latest economic indicators for Canada show that a recovery is indeed underway,” he said.

But the main thrust of his speech was the use of monetary policy in response to economic shocks. “As part of its decision-making process, the Bank has always followed world economic developments very closely. The Bank’s Governing Council starts its deliberations by looking at changes in the external environment,” he said. “In particular, we focus on economic prospects for the United States and the major overseas countries, as well as on world commodity prices. Then we look at the implications of all this for aggregate demand in Canada. Next, we focus on domestic demand, taking into account anecdotal information gathered by our regional offices, as well as trends in credit, money, and financial markets. All this feeds into our decision on interest rates.”

He also addressed the question of whether there should be greater policy cooperation, or even concerted action, by central banks around the world in response to major common shocks. “I would argue that the best way to deal with common shocks, such as last year’s global economic slowdown and the 11 September events, is prompt response by individual central banks. This response should be based on individual circumstances. But it should also take into account what is happening elsewhere and what fiscal and monetary authorities around the world are doing to deal with the situation. Otherwise, there is a risk that individual central banks will either under- or overreact, with potentially undesired consequences for the world economy.”

“I would say yes to co-operation; yes to exchange of information; and yes to taking into account what is happening elsewhere. But I do not believe that formal coordination or concerted action are necessary.”