As we look around the world and over history, we see that countries that achieve high standards of living and sustained strong output growth have also maintained low rates of inflation. 3.
Understanding the role of the exchange rate in monetary policy As I explained earlier in this lecture, when the Commission was preparing its Report, neither the then current economic theory nor the Canadian experience of the 1950s provided strong evidence for the crucial role that exchange rate flexibility plays in the operation of monetary policy in an open economy like Canada’s.