Canadian Monetary Policy

The goal of canadin monetary policy is to keep inflation stable between 1% and 3%. They will use contractionary monetary policy to decrease inflation and use monetary policy to stabilize exchaange rates; inflation ==> interest rates to go up ==> increase in demand for CAD ( CAD appreciates)
Down side
using high interet rate to control inflation can mke it difficult to service the national debt.




Monetary policy is concered with how much money circulates in the econaomy and how much money is worth.

The Bank carries out monetary policy by influencing short-term interest rates. It does this by raising and lowering the target for the overnight rate. (The "overnight rate" is the interest rate at which major financial borrow and lend one-day (or overnight) funds among themselves.) In November 2000, the Bank introduced a system of eight "fixed" dates each year on which it announces whether or not it will change the target for the overnight rate.

Changes in the target for the overnight rate usually lead to changes in other interest rates, and so affect people's spending decisions. This, in turn, influences the level of demand for goods and services. When demand exceeds supply, prices will rise.

The benefits

Low, stable and predictable inflation is the best contribution that monetary policy can make to a productive, well-functioning economy. It allows Canadians to make spending and investment decisions with more confidence. This encourages longer-term investment in Canada's economy, and contributes to sustained job creation and greater productivity. This in turn leads to real improvements in our standard of living.

references:
http://www.bankofcanada.ca/about/what-we-do/what-is-monetary-policy/