【正文】 erated by the BofC) 2. Repurchase Transactions (most mon) a) SPRAs (repo): Special purchase and resale agreement of gov’t securities to primary dealers b) SRAs (reverse repo): Special sale and repurchase agreement of govt securities to primary dealers b) Advances. Collateralized loans (usually overnight, oneday) to members of Canadian Payments Association (CPA). ↑ in Government Securities by BofC and Advances to Banks lead to ↑ in reserves (settlement balances of banks) that lead to ↑ in Money Supply 6 Nonbank Public (Client) Assets Liabilities Securities $100 Chequable deposits +$100 Example of open market operation: Purchase $100 of gov’t sec Banking System (., CIBC) Assets Liabilities Settlement balances +$100 Chequable deposits +$100 (ponent of money supply) Central Bank Assets Liabilities Securities +$100 Settlement Balances +$100 (ponent of moary base) 2) 3) 1) 7 ? The Bank of Canada Balance Sheet Advances to banks (collateralized loans) Ba n k A As set s Liab il it ies Res erv es ( S B) +$1 0 0 Ad v an ces +$ 10 0 B a n k o f C a n a d a A s s e t s L i a b i l i t i e s ( 1 ) A d v a n c e s + $ 1 0 0 R e s e r v e s ( S B ) + $ 1 0 0 Ban k A Assets Lia bil ities R eser ves (S B ) +0 Advance s + $1 00 Loa n +$10 0 Result in an ?initial SB ? $100, MB $100 ?↑ money supply Ban k B Ass ets Liabil iti es Res erves ( SB) +10 0 Ch e qu a ble depo sit s +1 00 8 HOW BofC IMPLEMENTS MONETARY POLICY? A: Through the operating band for the overnight interest rate, reinforced (if needed) by Repurchase Transactions in the Overnight (Repo) Market with Large Value Transfer System (LVTS) participants who hold SB accounts at the BofC In simple words: By the manipulation of the interest rates and the money supply 9 Implementation of Moary Policy in a nutshell ? Canada39。 Operating Band Target Overnight Rate, i*or= 2 189。 % i*or= 2190。 % S S D1 D2 i Open Market Operations by Bank of Canada using SPRAs Equilibrium in the overnight interest rate SPRAs are used to influence the market interest rate to decrease at a desired level (by targeting the overnight interest rate at the midpoint of the operating band) ? Increase indirectly the Money Supply (see next slide graph) Fig 3 SPRA D3 Today (9:00 am): BofC announces new target rate Yesterday 27 Effect of BofC intervention via SPRAs on the Money Supply (MS) . MS* Demand i*or= 2190。 investing, WSJ) – In 1923 you needed 726 million marks to buy the same than 1 mark in 1918. ? Interest Rate Stability ? Stability of Financial Markets (Changes in US moary policies may impact adversely other financial markets, ., Russian EuroBond Market 1998) ? Stability in Foreign Exchange Markets ? Conflict of goals Examples: – ↓ interest rate ? ↑ Economic growth ? ↑ inflation – Solution? ↑ interest rate ? ↓ inflation ↑ interest rate ? ↓ Economic growth ? ↑unemployment Usually the results of moary policy appear after 1 year or two 33 ?How the goals can be achieved? Tools ?Operating Targets ?Intermediate Targets ? Goals Market Operations Outright purchase and selling of government High Employment securities by the BofC Economic Growth 2. Target Overnight Interest rate Price Stability (., 2%) reinforced by Interest Rate Stability a) SPRAs (repo) Stability of Fin Markets b) SRAs (reverse repo) Stability in FX Markets 3. Lending to Direct Clearers 4. Government Deposit Shifting 5. Swaps with the Exchange Fund Account 34 Targets of moary policy a) Intermediate Targets b) Operating Targets or Instruments a) Intermediate Targets – Moary Aggregates: – M1 (currency + demand deposits) , – M2 (M1+ savings accounts), – M3 (M2 + short term deposits + foreign currency holdings by Canadian residents) – Interest rates: ST or LT. ? Affects the MS indirectly ?No very sensitive to BofC moary tools 35 b) Operating Targets or Instruments – Reserves aggregates or the moary base – Interest Rates (overnight interest rate or TBill rate) ? More sensitive to moary tools Criteria for choosing Operating Targets Both are measurable and controllable with precision pared to intermediate targets . The choice of the intermediate target is the goal for the operating target. ? To achieve main economic goals, aggregates or interest rates cannot be pursued at the same time (they are inpatible). Then, which target BofC should choose? What economic goals? Trend is to manipulate the