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1. Why and when did Canada adopt inflation targeting?
In 1991, the initial object is to reduce inflation rate,
2. How does the Bank of Canada conduct monetary policy?
The Bank implements monetary policy by influencing short-term interest rates. It does this by
raising and lowering the target for the overnight rate (also known as the
key policy rate
.) This
is the interest rate at which major financial institutions borrow and lend one-day to each
other.
The Bank of Canada conducts an expansionary monetary policy by reducing its target for
the overnight interest rate. It conducts a contractionary monetary policy by raising its
target for the overnight interest rate.
3. What is the main tool of monetary policy for most central banks? How does it work?
4. What would a central bank do if its forecasts indicated inflation would begin to rise a year
from now to an unacceptable level if it did not do anything?
If there’s a inflation, BOC raises overnight loans rate target→decrease monetary base and
