The Bank of Canada’s monetary policy accomplishes a simple, yet vital, task: it manages the level of demand over the business cycle in order to meet our inflation target. In turn, an environment of low, stable and predictable inflation allows productivity-enhancing investments in physical and human capital.
The term “too interconnected to fail” might therefore be even more appropriate for this well-known “too big to fail” problem. The insolvency of Lehman Brothers that I mentioned earlier is a case in point.