Question

conclusion the paper of why monetary policy matters: a Canadian perspective?

Answer 1

With the change in the overnight interest rate, the Bank of Canada’s impacts the entire spectrum of interest rates in the market. With an increase in the interest rates rise, the households and firms will decrease their credit demand from commercial banks. On contrast when the as interest rates declines, firms and households raise their credit demand for commercial bank. With the rise in the credit in the economy, it results to a rise in an increase in the volume of transactions for products and services, and therefore a rise in the overall money demand with which to make such transactions. Therefore there is the connectivity among the Bank of Canada’s target for the overnight rate of interest, the money in circulation, and the balance sheet of the bank. Any changes in the overnight rate target results to a change in the interest rates in other market and leading to changes in the demand for credit, money and bank notes.

To summarize in Canada the monetary policy has three main characteristics:

-- Bank of Canada is government-owned crown corporation and monetary policy is conducted by Bank of Canada who operates with considerable independence from the federal government

-- As financial capital within Canada can move easily, thus the rates of interest on similar assets will be similar same across all regions in Canada. Consequently only one monetary policy in entire country; and in Canada the Bank of Canada acts as the sole issuer of legal tender

-- Although several economic variables impact the decisions on the monetary-policy however Bank of Canada uses only one policy instrument.