ECON 1900 Chapter Notes - Chapter 30: Open Market Operation, Foreign Exchange Market, Overnight Rate
7 Feb 2014
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Document Summary
A monetary policy strategy in which the central bank commits to an explicit inflation target and to explaining how its actions will achieve that target is called inflation rate targeting. The bank of canada agreed that the inflation control target range will be 1 percoent to 3 percent a year which will stabilize investements and unemployument inflations can be easily predicted. The bank of canada can decide to control the quantity of money (monetary base), the price of canadian money on the foreign exchange market (the exchange rate), or the opportunity cost of holding money (the short term interest rate). The bank cannot change all 3 as the other 2 factors will depend on single changes. The specific interest rate that the bank of canada targets is the overnight loans rate which is the interest rate on overnight loans that members of the large value transfer system make to each other,
