ECON102 Lecture Notes - Lecture 98: Foreign Exchange Market, Core Inflation, Monetary Base

• School: University of Waterloo
• Department: Economics
• Course: ECON102
• Professor: Joseph Dejuan

Document Summary

Chapter 30: monetary policy target inflation rate ranges from 1 to 3% Core inflation fluctuates less than general inflation since it excludes food and energy in its calculation. Bank of canada believes that core inflation is a better measure of the underlying inflation trend and better predicts future cpi inflation. The boc has three possible instruments to use: quantity of money (monetary base: sum of the currency in circulation and reserves from chartered banks, exchange rate: price of canadian money on the foreign exchange market, s. t. Can only adjust one instrument at a time; while taking the consequences from the two other instruments i. e. boc decreases quantity of money => interest rate and exchange rate would both rise. Overnight loans rate: interest rate on overnight loans that chartered banks make to each other. Boc want to slow inflation =>increase olr. Boc want to increase inflation=> decrease olr.