Overall, credibility has stabilized the inflation process and, therefore, inflation itself. Moreover, effective monetary policy seems to have reduced the variability in the real economy as well. The credibility of fiscal policy has enhanced investment planning by the business sector since it has drastically reduced the risk of future increases in taxes stemming from a need to deal with fiscal problems.
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.