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monetary policy

Published on Dec 11, 2015

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1.

monetary policy

Mr. Melkonian
Photo by Werner Kunz
2.

bank's primary goal?

consistently have low inflation (1-3% annually)
Photo by haemengine
3.

overnight rate target

important for monetary policy
Photo by HckySo
4.

operating band

0.5 percent range between Bank of Canada and Bank rate
Photo by gus_estrella
5.

overnight rate target

always lies at the midpoint within the operating band
Photo by LendingMemo
6.

actual rate they charge

becomes overnight rate
7.

by changing the overnight rate

Bank tells chartered banks the direction monetary policy is headed in
Photo by GollyGforce - Living My Worst Nightmare
8.

increase/decrease consequences

Photo by rasbliutto
9.

bank's balance sheet

assets/liabilities
Photo by [ Ben ]
10.

assets

things of value
Photo by Children First
11.

government of Canada bonds

money borrowed - payed back by certain rate with x% interest
Photo by "The Wanderer's Eye Photography"
12.

foreign exchange

used to buy/sell Canadian dollars - usually dealing with US dollar
Photo by Adam N. Ward
13.

Advances to the chartered banks

bank loans money for interest
Photo by rinkjustice
14.

liabilities

money you owe
Photo by lars hammar
15.

currency outstanding

currency around the country... 
Photo by aresauburn™
16.

deposits of chartered banks

money chartered banks owe to central  banks
Photo by harold.lloyd
17.

deposits of the federal government

Government 'chequing account' used to pay salaries etc.
Photo by Mr. Daniel Godin
18.

we learned earlier...

Photo by Miroslav Vajdić
19.

We're in a recession - not full employment. We use fiscal tools to get out of the rut. Try to increase aggregate demand to encourage closer gap to full employment.

20.

stage 1

Central Bank shifts gorvernment deposits to accounts of chartered banks- increased reserves/loans 
Photo by rgieseking
21.

stage 2

lower interest rates- encourage people to borrow money and spend
Photo by striatic
22.

stage 3

new borrowing increases money supply - people purchase output
Photo by the Italian voice
23.

stage 4

increased spending pushes AD to full employment (ideally)
Photo by pennstatenews
24.

High inflation on the other hand - different policy to consider. We want to drop aggregate demand. Increase taxes and lower spending

25.

step 1

shift money from chartered banks to central bank - less money to lend, higher interest
Photo by JD Hancock
26.

step 2

higher interest rates discourage big borrowing
27.

step 3

less borrowing decreases money growth - people spend less
28.

step 4

people have spent less so inflation drops
29.

banks used to be very secretive about decision making

30.

bank of canada is very transparent now

why is this the case?

Peter Melkonian