EC250 Chapter Notes - Chapter 10: Nominal Interest Rate, Overnight Rate, Monetary Policy
Document Summary
Boc was created in 1935 after great depression since 1938 been a crown corp. Apart from conducting monetary policy-> make money, oversee payment system for stability of the financial system, and manages fed funds. The first target inflation rate was 2%-4% and since 1995 the goal of maintain inflation between 1- 3. Monetary policy must be very dramatic in order to make return faster to the target. When inflation above target boc will raise interest rate a lot causing a rapid decline in eco activity. When inflation falling below target need to lower the interest rate more = causing significant increase in eco activity. To avoid dramatic policy responses boc tries to bring the inflation to target only over the medium term of 6-8 quarters(1. 5-2) Core cpi : cpi price of fruits, veg, gasoil, oil, natural gas, mortgage interest, intercity transportation, and tobacco and effect of changing indirect tax on the remaining components.
