Global financial conditions have improved, supported by aggressive policy actions of major central banks. Sentiment, though, remains fragile. •  In Canada, while global headwinds continue to restrain economic activity, domestic factors are supporting a moderate expansion. Following the recent period of belowpotential growth, the economy is expected to pick up and return to full capacity by the end of 2013.
As Japan’s post-war experience, which I explained in the first part of this article, suggests, price stability is important for fully realizing the effects of financing for development. However, in emerging countries, monetary tightening against the backdrop of inflationary pressure due to overheating of the economy often induces carry trades and accompanies a rapid increase in capital inflows from advanced countries.