EC223 Chapter Notes - Chapter 17: Complete Control, Excess Reserves, Quantitative Easing
Document Summary
The framework for the implementation of monetary policy: Can only make payments if (+) settlement balance or collateral posted. Electronic real time net settlement network. Immediate finality and settlement time critical transactions. Systematic risk: risk to payments system b/c one financial institution can"t fulfill payment obligations. Uses multilateral netting: no need for large settlement balances. Automated clearing settlement system (acss): payments system but with lots of risk controls. Overnight interest rate: rate which borrow and lend overnight. Boc announces a targeted overnight rate policy rate. Policy rate: tool used to conduct monetary policy. Closer reference rate = policy rate closer overnight rate is to targeted overnight rate. Bank"s operational objective keep overnight rate within operating band. Upper limit of operating band = bank rate: amount people pay banks with negative settlement. Lower limit: amount banks pay to people with positive settlement, overdraft. Lvts participant = settlement with boc close to zero.
