When this happens, the downturn induced by debt will generally be amplified as firms start making less, which in turn leads them to cut back on investment. The resulting bust period makes attaining the inflation target at a later date more challenging.
Figure 2: In the presence of a financial vulnerability, an interest rate cut generates a delayed bust in production Deviation from steady state  0  1  2  3  4  5  6  7  8  9  Period GDP Source: Bank of Canada illustration reflecting System B in the Appendix  Debt  10  -7-  It is important for an inflation-targeting central bank to recognize whether vulnerabilities are present, as these can give rise to this difficult trade-off dynamic.