【正文】 lement balance for each participant on wholesale transactions. Bank Rate, ib = 2190。 % = 2188。 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 overnight interest rates to achieve main goals of high level of employment and sustained economic growth. 36 Other slides (supplement) % (nominal desired goal) M1 = 3% MB = 2% ↓i*or to 2% MB = 3% M1=4% % (problem: ↑ inflation) Expected Possibility 37 Inflation Rate and Inflation Targets for Canada, 19802021 38 Conclusions ? Bank of Canada: Moary Policy ? Main objective: Price stability (low inflation) Mostly via changes in the overnight interest rate ? Goals of Moary Policy High employment, economic growth, price stability, interests rate stability, stability of financial markets and stability in foreign exchange markets. ? Directly achieved by Intermediate and Operating Targets ? BofC has been very successfully in controlling inflation mostly in the last 15 years 。 % i*or= 2190。1 Ch. 7 Moary Policy: Tools,Goals and Targets (by Mishkin et al. 2021 Ref. book) General Overview Role of BofC “To promote economic and financial wellbeing of Canada” by achieving specified goals, mainly low and stable inflation. ? How? Mostly through Moary Policy via manipulation of interest rates and money supply. 2 Outline Bank of Canada: Balance Sheet Moary policy: Basic Concepts The Market For Settlement Balances And The Overnight Rate Tools of Moary Policy Goals of Moary Policy Targets of moary policy Conclusions 3 Bank of Canada: Balance Sheet The Bank of Canada(BofC): Balance Sheet* Bank of Canada Assets Liabilities Government Securities Advances to banks Notes in circulation Settlement balances (SB) * Only accounts that are affected by changes in moary policy are reported General Overview Moary Liabilities: Moary Base ↑ in Notes in Circulation and Settlement balances lead to ↑ in Money Supply Assets ↑ in Government Securities and Advances to Banks lead to ↑ in reserves (settlement balances of banks) that lead to ↑ in Money Supply In Canada this occurs by changing (↓) interest rates by the BofC to major FIs, which stimulates demand for debt ($ via opening checking accounts) which leads to increases in the money supply – Our main topic. Components of moary base 4 Moary Liabilities: Moary Base a) Notes in circulation: Currency (not included coins) held by public and depositary institutions b) Settlement balances: Reserves or deposit held by direct clearing members of the Canadian Payments Association (CPA) at the Bank of Canada (BofC) Reserves consist of settlement balances at the Bank of Canada plus