The Bank of Canada is now more sensitive to the negative supply effects that are associated with large relative price movements and the economic restructuring that follows, adjusting its estimates of potential output appropriately to avoid inadvertently overstimulating the economy. The third and final way that governments can help the economy to cope with commodity cycles is through structural reform.
In normal times, the Canadian economy generally performs quite well, but it is still subject to unhelpful frictions and barriers. These affect the resilience of the economy and its ability to weather shocks, making it difficult to reallocate resources in a flexible, efficient manner. Canada has made good progress over the past three decades in allowing goods and services to move more easily.