To keep inflation low, stable and predictable, to moderate the business cycle, and help the economy...
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Transcript of To keep inflation low, stable and predictable, to moderate the business cycle, and help the economy...
To keep inflation low, stable and predictable, to moderate the business cycle, and help the economy achieve full employment and sustained growth.
By altering the money supply to influence interest rates
Inflation target range of 1-3% annually
©2013 McGraw-Hill Ryerson Ltd. 1Chapter 13.3
Reserve Bank of Australia (RBA)
Bank of Canada
European Central Bank (ECB)
Bank of Japan (BOJ)
Banco de Mexico (Mex Bank)
Central Bank of Russia
Sveriges Riksbank
Bank of England
Federal Reserve System (the
“Fed”)
(12 Regional Federal Reserve
Banks)
Australia:
Canada:
Euro Zone:
Japan:
Mexico:
Russia
Sweden:
United
Kingdom:
United States:
Selected Nations
©2013 McGraw-Hill Ryerson Ltd. 2Chapter 13.3
The Objective of the Bank of Canada’s Monetary Policy
Tools of Monetary Policy: Open-Market Operations Bank Rate
©2013 McGraw-Hill Ryerson Ltd. 3Chapter 13.3
Bank of Canada BUYS bonds from the chartered banks Chartered bank gives up bonds Bank of Canada pays chartered
bank by increasing chartered bank’s reserves
©2013 McGraw-Hill Ryerson Ltd. 4Chapter 13.3
Assets Liabilities and Net Worth
Bank of Canada
+ Securities + Reserves of Chartered Banks
(b) Reserves
Chartered Banks
-Securities (a)
+Reserves (b)
Assets Liabilities and Net Worth
LO2
(a) Securities
16-5©2013 McGraw-Hill Ryerson Ltd. 5Chapter 13.3
Bank of Canada BUYS bonds from the public Public gives up bonds for cheque Cheque is deposited in chartered
bank Chartered bank’s reserves increase
©2013 McGraw-Hill Ryerson Ltd. 6Chapter 13.3
Bank of Canada buys $1,000 bond from a chartered bank.
New Reserves
$5000Bank System Lending
Total Increase in the Money Supply, ($5,000)
$1000ExcessReserves
©2013 McGraw-Hill Ryerson Ltd. 7Chapter 13.3
Bank of Canada buys $1,000 bond from the public.
New Reserves$1000
Total Increase in the Money Supply, ($5000)
$200DesiredReserves
$800ExcessReserves
$1000InitialCheckableDeposit
$4000Bank System Lending
©2013 McGraw-Hill Ryerson Ltd. 8Chapter 13.3
Bank of Canada BUYS bonds Chartered bank’s reserves increase Banks increase lending Money supply increases
Bank of Canada SELLS bonds Chartered bank’s reserves decrease Banks decrease lending Money supply decreases
©2013 McGraw-Hill Ryerson Ltd. 9Chapter 13.3
Assets Liabilities and Net Worth
Bank of Canada
- Securities - Reserves of Chartered Banks
Chartered Banks
+ Securities (a)- Reserves (b)
Assets Liabilities and Net Worth
(a) Securities
(b) Reserves
LO2 16-10©2013 McGraw-Hill Ryerson Ltd. 10Chapter 13.3
Bank of Canada SELLS bonds to the public Public pays bonds with cheque Cheque is cleared in chartered bank Chartered bank’s reserves decrease
The Bank of Canada bond sales of $1000 to the chartered banking system reduce the system’s actual and excess reserves by $1000.
But a $1000 bond sale to the public reduces excess reserves by $800
©2013 McGraw-Hill Ryerson Ltd. 11Chapter 13.3
The bank rate is the interest rate the Bank of Canada charges on the loans to the chartered banks
Bank rate is set at the upper end of the Bank of Canada’s operating band for the overnight lending rate
Bank has a publicized target for the overnight lending rate
©2013 McGraw-Hill Ryerson Ltd. 12Chapter 13.3