EC140 Lecture Notes - Lecture 17: Monetary Policy, Overnight Rate, Inflation Targeting
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EC140 Full Course Notes
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Ec140 lecture #17: monetary policy in canada. How the bank of canada implements monetary policy. 1. the bank can influence an interest rate more easily than it can affect the money supply instability of money demand. Ad = as; determines equilibrium p and y. The role of the output gap in the short run, when an output gap opens, the bank has two choices: allow the adjustment process to operate intervene with monetary policy. 2. since output gaps put pressure on inflation, the bank monitors the output gap and may intervene in order to keep output near potential: thereby keeping inflation within the target band. Monetary policy operates with a time lag that is long and variable for two main reasons: changes in expenditure take time the multiplier process takes time. Most economists now agree that monetary policy can lead to more economic stability.
