Monetary policy implementation

• The Implementation of Monetary Policy in Canada

  Staff Discussion Paper 2008-9 Walter Engert, Toni Gravelle, Donna Howard

  The authors present a detailed discussion of the Bank of Canada's framework for the implementation of monetary policy. As background, they provide a brief overview of the financial system in Canada, including a discussion of the financial services industry and the money market.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Financial institutions, Financial markets, Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): E, E5, E52, E58, G, G2, G21
• December 11, 2007

  The Zero Bound on Nominal Interest Rates: Implications for Monetary Policy

  Bank of Canada Review - Winter 2007-2008 Claude Lavoie, Stephen Murchison

  One of the most important factors that must be considered if countries are thinking about lowering the target level of inflation much below 2 per cent is the zero interest bound. Targeting inflation rates that are too low, the authors note, may restrict the ability of monetary policy to respond to economic shocks by limiting the amount by which interest rates can be eased.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Inflation: costs and benefits, Interest rates, Monetary policy implementation
• April 14, 2007

  The Canadian Overnight Market: Recent Evolution and Structural Changes

  Bank of Canada Review - Spring 2007 Christopher Reid

  Since 1997 when the Bank of Canada last published a review of the Canadian overnight market, several important changes have affected the market's structure and dynamics. Reid provides a current overview of the market, examining the financial instruments, market transparency and flows, and the collateralized overnight rate as it has evolved since the introduction of the Large Value Transfer System and the fixed announcement dates. Other significant influences include changes in market practices regarding risk management, the rise of securities lending, the increased demand for collateral, and the Bank of Canada's measures to reinforce the target for the overnight rate.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Market structure and pricing, Monetary policy framework, Monetary policy implementation

• Perhaps the FOMC Did What It Said It Did: An Alternative Interpretation of the Great Inflation

  Staff Working Paper 2007-19 Sharon Kozicki, P. A. Tinsley

  This paper uses real-time briefing forecasts prepared for the Federal Open Market Committee (FOMC) to provide estimates of historical changes in the design of U.S. monetary policy and in the implied central-bank target for inflation. Empirical results support a description of policy with an effective inflation target of roughly 7 percent in the 1970s.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Monetary aggregates, Monetary policy implementation JEL Code(s): E, E3, E5, N, N1

• LVTS, the Overnight Market, and Monetary Policy

  Staff Working Paper 2006-15 Nadja Kamhi

  Operational events in the Large Value Transfer System (LVTS) almost always result in a disturbance of the regular flow of payments.

  Content Type(s): Staff research, Staff working papers Topic(s): Monetary policy implementation, Payment clearing and settlement systems JEL Code(s): E, E5

• The Federal Reserve's Dual Mandate: A Time-Varying Monetary Policy Priority Index for the United States

  Staff Working Paper 2006-11 René Lalonde, Nicolas Parent

  In the United States, the Federal Reserve has a dual mandate of promoting stable inflation and maximum employment. Since the Fed directly controls only one instrument - the federal funds rate - the authors argue that the Fed's priorities continuously alternate between inflation and economic activity.

  Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Monetary policy framework, Monetary policy implementation JEL Code(s): C, C2, C22, C5, C52, E, E5, E52
• December 8, 2005

  Towards a Made-in-Canada Monetary Policy: Closing the Circle

  Bank of Canada Review - Winter 2005-2006 John Chant

  When the Bank of Canada was first established in 1935, it had two very different models to choose from—the Bank of England and the U.S. Federal Reserve—in terms of the instruments that it might use for implementing monetary policy. Although some aspects of the Bank's early monetary policy practices, including the role of discount facilities and moral suasion, reflect the British example, other important differences shaped a distinctly Canadian approach. Chant describes what he argues are distinctively Canadian innovations: the Bank's favoured means of managing chartered bank liquidity through transfers of government deposits, the adoption of lagged reserve requirements, and the two periods in which it decided to float the Bank Rate. He also describes the series of bold initiatives that were undertaken in the 1990s with regard to simplifying clearing and settlement procedures, reducing reserve requirements, and setting the Bank's target for the overnight rate. Chant suggests that these changes have improved market efficiency, reduced risk and uncertainty, and strengthened the Bank's influence over its short-term operating target.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Monetary policy implementation

• The 1975–78 Anti-Inflation Program in Retrospect

  Staff Working Paper 2005-43 John Sargent

  The author provides an overview of the 1975–78 Anti-Inflation Program (AIP), in a background document prepared for a seminar organized by the Bank of Canada to mark the AIP's 30th anniversary.

  Content Type(s): Staff research, Staff working papers Topic(s): Credibility, Fiscal policy, Inflation and prices, Inflation targets, Monetary policy framework, Monetary policy implementation JEL Code(s): E, E3, E31, E5, E52, E6, E63, E64, E65

• The Exchange Rate and Canadian Inflation Targeting

  Staff Working Paper 2005-34 Christopher Ragan

  The author provides a non-technical explanation of the role played by the exchange rate in Canada's inflation-targeting monetary policy.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Inflation targets, Monetary policy implementation JEL Code(s): E, E5, E50, E52, F, F4, F41
• October 5, 2005

  The Exchange Rate and Canadian Inflation Targeting

  Bank of Canada Review - Autumn 2005 Christopher Ragan

  An essential element of the Bank of Canada's inflation-targeting framework is a floating exchange rate that is free to adjust in response to shocks that affect the Canadian and world economies. This floating rate plays an important role in the transmission mechanism for monetary policy. A practical question is how the Bank of Canada incorporates currency movements into the monetary policy decision-making process. Only after determining the cause and persistence of exchange rate change, and its likely net effect on aggregate demand, can the Bank decide on the appropriate policy response to keep inflation low, stable, and predictable. Ragan reviews the need to target inflation and the transmission mechanism for monetary policy, including the role of the exchange rate, before describing two types of exchange rate movements and their implications for monetary policy.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rates, Inflation targets, Monetary policy implementation