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The Bank of Canada

In: Business and Management

Submitted By alliemac2014
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1. The Bank of Canada signed the pioneer inflation-control agreement with the federal government in 1991. 2. Canada’s average annual inflation rate since signing the agreement in 1991 has been averaged at 2%. 3. The inflation control agreement has benefitted Canadians by providing greater price stability. Greater price stability has allowed consumers and businesses to manage their finances with confidence about future purchasing power of their savings and incomes. Low, stable, and predictable inflation has encouraged more solid economic growth and a well-functioning and more stable labour market. 4. The inflation- targeting agreement is renewed with the federal government approximately every five years and was last renewed in 2011. 5. Inflation rates should be low enough to minimize the effects that high inflation rates can have such as; destroying purchasing power, creates uncertainty, distorts relative prices and investment decisions, and causes arbitrary redistributions of wealth between savers and borrowers. 6. The bank decided not to target an inflation rate lower than 2% because there are some risks in very low rates of inflation. One of the most important risks is the zero lower bound (ZLB) on interest rates. 7. In the Deputy Governor’s speech ZIB refers to zero lower bound on interest rates. 8. Four key properties that an effective core measure must have are; * it must be less volatile than total inflation * track long-run movements in the total CPI very closely * reliably predict future trend movements in the total CPI * be easy to understand and explain to the public 9. Ms. Cote states that the component of the CPI that has shown fairly high volatility in the recent years is electricity. 10. The Deputy Governor stated the most important contribution that a central bank can make to the economic…...

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