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
- 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
- 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
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