Thus, credibility has led to a more stable Canadian economy and one that is better positioned for future economic growth. Stabilization policy There is a connection between credibility and my next topic—stabilization policy. The achievement of policy credibility has meant that the automatic stabilizers in the economy—those features of macro policy that tend to stabilize output—can be allowed to work fully.
When the monetary and fiscal authorities are attempting to establish credibility, there is a natural inclination—and sometimes a necessity—to err on the side of overachieving the targets. This means that explicit actions may have to be taken to prevent the automatic stabilizers from working, as was the case with fiscal policy in the 1990s.