It is the best contribution monetary policy can make to the economic and financial well-being of Canada. And achieving the inflation target is consistent with closing the output gap and attaining full employment in a typical business cycle. Among economists, this is known as the “divine coincidence.”1 This business cycle has been far from typical. It spans a particularly destructive recession.
Companies discarded unneeded capital and eliminated jobs. Many closed their doors for good. We know that a large number of firms in Canada simply disappeared, and with them, so did significant physical capital. But people are not like capital – the workforce is still available to be productively employed. It is critical that we consider the labour market for two reasons.