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ECON 1900 (41)
Chapter 30

Econ 1010 chapter 30.docx

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ECON 1900
Rebecca Jubis

Econ 1010 chapter 30 - 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, - An instrument rule is a decision rule for monetary policy that sets the policy instruments at a level that is based on the current state of the economy. - A targeting rule is a decision rule for monetary policy that sets the policy instumrnes at a level that ameks the forecast of the policy target equal to the target. - Operating band is the target overnight rate plus orminus 0.25 percent points. Entirely at 0.5 percent wide o bank rate is the interest rate that the bank of Canada charges big banks on loans. o Banks earn interest when holding reserves at the bank of Canada and is called the settlement balances rate. This is 0.25 below the target rate o An open market operation sis the purchase or sale of government of Canada securities treasury bills and government bonds by the Bank of canda or other chartered bank. The bank’s buying or selling depends on the market ove
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