EC140 Chapter Notes - Chapter 29: 1997 Asian Financial Crisis, Core Inflation, Canadian Dollar
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EC140 Full Course Notes
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Document Summary
In general, any central bank has two options for implementing its monetary policy: it can choose to target the money supply or it can choose to target the interest rate. For a given md curve, it cannot target both independently. If it chooses to target the money supply, monetary equilibrium will determine the interest rate. If it chooses to target the interest rate, the money supply must adjust to accommodate the movement along the md curve. The bank of canada could attempt to shift the ms curve directly by changing the amount of currency in circulation in the economy. It could do this by buying or selling government securities in the financial markets. Because the money supply is the sum of currency and deposits, this means that the. Bank can influence the money supply but cannot control it: the uncertainty regarding the slope of the md curve.