ECO 2143 Lecture Notes - Lecture 12: Macroprudential Regulation, Nominal Interest Rate, Real Interest Rate

• School: University of Ottawa
• Department: Economics
• Course: ECO 2143
• Professor: Greg Caldwell

Document Summary

In canada, the optimal interest rate according to the boc is around 2%, with an acceptable range of 1-3%. John crow wanted in ation at 0% in order to stabilize the value of money and avoid distortions. The way in ation is measured is overstated by 1-2%. Therefore, if mesure in ation is 1%, real in ation is probably 0%. However, this must be clearly explained to the public (expectations). In ation can equilibrate wages without having workers endure a cut. Negative real interest rates can be a good thing. M1 is the current money and short term deposits that can be accessed. M1+long term deposits that can"t be accessed today. The money stock (m1) and in ation do not have a 1-1 correspondance. Therefore, computing a monetary growth rate (controlled by the government) to achieve targeted in ation (not controlled) doesn"t work. This is due to the fact that shifts in money demand.