Canadian Economy (Cyclical expansions of 3 stages)
• Demand for consumer goods, infrastructure expenditures, housing, strong
immigration. Inflation↑ , unemployment↓
• Recession: government heavily invest in defence. Inflation↑ , unemployment↑
• Canadian dollar appreciated. Inflation↓ , unemployment↑
Bank of Canada
• The goal of monetary policy is to rising living standards for all Canadians
through low and stable inflation.
• Graham Towers (governor) not actively pursue on monetary policy, he only
changed the bank rate twice.
• Later took over by Coyne (governor), he changed the bank rate 6 times and
raising it each time.
• Coyne emphasized the impact of inflation, encouraged economic growth and
• He continue to against inflation, because Inflation causes inefficiency,
injustice, produce recession.
• To the bankers: He demanded the bank has to have 15% liquidity ratio and
8% cash reserve.
• This high ratio made the bank become less flexible and led the central bank
to have full control of charter banks’ asset.
• Later, he replaced the fixed bank rate with a floating rate, because 1) a rate
higher than market rate can discourage borrowing, 2) floating rate can
respond quickly to changes in market.
• Also, he proposed that the banks have to create new saving banks to fund
long- term investment.
• Although bankers opposed this implementation, they had little choice but to
Government changed to Conservative ( under John Diefenbaker) • Donald M. Fleming who was a finance minister, against Coyne’s ideology of
inflation and rising bank rate.
• The Bank