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Welcome to my wall, where you have the opportunity to learn about Canada’s monetary policy through a series of videos, websites, and images. Canada’s monetary policy is set by the Bank of Canada which is Canada’s Central Bank. The policy decisions set by the Bank of Canada have a broad impact across the Canadian economy and even on you as an individual. The goal of monetary policy is to preserve the value of the Canadian dollar by keeping inflation low, stable, and predictable.

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This is the official Bank of Canada Website where you can find a number of resources on the monetary policies set out by the Bank. The website explains the objective of Canada’s monetary policy along with the instruments which the Bank uses to implement their policy.

I chose this website as it is the most direct source on Canada’s monetary policy and provides a breadth and depth of material specific to Canada that is not available on other websites. The piece of information I found most useful was the section explaining quantitative easing. The Bank typically controls inflation by influencing short-term interest rates. However, since rates have been so low for so long the Bank had to expand its toolbox to include quantitative easing in order to stimulate the economy and increase inflation back to the 2% target level.

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Learn about the objective of Canada's monetary policy and the main instruments used to implement it: the inflation-control target and the flexible exchange rate. See also how monetary policy works, how decisions are made and read related backgrounders.

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The focus of this website is on the Canadian housing market and compiles articles and research on how government policies (including monetary policy) impact the market.

I selected this website as one of the major beneficiaries of the Bank of Canada’s monetary policy has been the Canadian housing market. This website compiles many interesting articles and research pieces focused solely on the Canadian housing market which I found difficult to locate on other websites. I find the most interesting thing about this website is noticing the tone of the articles over time. For example, if you view articles from a few years ago many were recommending Canadians take advantage of lower interest rates to purchase a home. Now, many of the articles are blaming these low rates on an overheated real estate market that threatens to destabilize the Canadian economy.

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This website provides interesting content on Canadian economic policies including the limitations of monetary policy and debates whether a low inflation target is the best objective for the Bank of Canada.

I chose this website as it presents counter arguments the policies established by the Bank of Canada as well as a history of monetary policy in Canada and how the policies have changed over the years. I could not find other sites that presented clear arguments against current policies or that challenged the objectives of the Bank. The most useful information I found on this website was the comparison between Keynesianism and Monetarism and the influence each has had on Canadian monetary policy. Keynesianism dominated in the 1960’s through 1980’s. This period experienced strong economic performance but also periods of double-digit inflation. As a result, of this double-digit inflation Monetarism took over as the dominate policy influence in the late 1980’s as a way to stimulate the economy without creating double-digit inflation.

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Money Supply

The money supply is that portion of the financial wealth of Canadian households which has enough liquidity to be considered money. At the least it includes ​coin, currency, and chequing-account deposits in chartered banks, all of which have perfect liquidity in that they represent, at face value, an immediate means of payment for purchases made. Some ​economists broaden the money-supply definition by including additional chartered-bank deposits, such as savings accounts, or deposits in other financial institutions such as trust companies or credit unions.

One method of manipulating the money supply, called open-market operations, involves the trading of Canadian government securities in the secondary bond and treasury bill markets. A purchase of government bonds by the Bank of Canada represents an immediate increase in the stock of money held by the general public, raises banking system reserves, and therefore has a multiplied indirect effect on the total money supply. The added demand for bonds also puts downward pressure on bond yields and hence on the overall level of interest rates. Through a sequence of opposite effects, a sale of bonds will decrease the money supply and raise interest rates.

Wider Economic Goals

Because of the strong links between Canadian and American financial markets, monetary policy also has a major impact on the Canadian-United States dollar exchange rate. If Canadian monetary policy is significantly more expansionary than US policy, the value of the Canadian dollar will tend to depreciate in relation to the US dollar. A more contractionary Canadian policy will result in the reverse effect. Canadian monetary policy, therefore, tends to work through a combination of interest rate effects and exchange rate effects. The ​Bank of Canada attempts to measure the combined impact of both through its monetary conditions index in which a one per cent decline in short-term interest rates is equivalent to a three per cent decline in the value of the Canadian dollar.

Limitations

Monetary policy also has limitations. It cannot stimulate economic demand to reduce unemployment and at the same time restrain demand to combat inflation. Nor can the ​Bank of Canada increase money growth rates to reduce interest rates below US levels while at the same time successfully stabilizing the Canadian-US exchange rate. Therefore, monetary policy decisions often require painful choices. Sometimes these trade-offs involve conflicts between the short-term and long-term effects of a particular policy. For example, a sustained rise in money-supply growth may cause an initial increase in both jobs and production, but eventually it will lead to a correspondingly higher inflation rate with little or no permanent effect on employment or output.

Similarly a major reduction in the rate of money-supply expansion ultimately will reduce even strongly entrenched inflation. But this accomplishment may take several years during which output and employment both fall. These conflicts can be complicated by a third limitation - ignorance - for there are still many unresolved questions about the mechanisms whereby changes in monetary policy affect the economy and the exact determinants of wage- and price-setting decisions.

The creation of monetary policy is often a highly contentious issue. Disagreements sometimes occur because of differing factual judgments about current economic circumstances (eg, whether or not a recession has started), or because of conflicting value judgments (eg, whether it is more unfair to have inflation erode the value of fixed pensions or to have recession cause the loss of jobs). Frequently, however, debate reflects broad conceptual differences about the appropriate strategy for monetary policy.

Although there are many alternative viewpoints, two general approaches can be distinguished.

Keynesianism

Keynesians recognize the risk that the policy chosen may sometimes worsen rather than improve economic performance. Some Keynesians, therefore, cautiously argue that while major cyclical swings should be countered by an appropriate policy change, minor fluctuations should be largely ignored. As a group, Keynesians are especially concerned that complete failure to react to economic downturns could lead to episodes of prolonged and severe economic stagnation - characterized by falling output and high unemployment - which can and should be avoided.

Monetarism

The most important distinguishing characteristic of monetarists is their strong skepticism about the use of discretionary monetary policy to offset business-cycle fluctuations. Instead they advocate a neutral policy in which money-supply growth rates would be set and maintained at low levels, except in extreme economic circumstances. Monetarists assert that in practice Keynesian monetary policy will be too stimulative, aiming at immediate employment and output gains and ignoring the potential for higher inflation in the long run.

In the 1960s and early 1970s, the Keynesian approach was dominant, and the generally strong economic performance of the Canadian economy and many other economies was attributed, in part, to the implementation of Keynesian monetary and fiscal policy. However, the frequent bouts of double-digit inflation from the mid-1970s through the early 1980s, coupled with new theoretical analysis by a number of monetarists, greatly increased the influence of monetarist ideas on both academic economists and central bankers, including the Bank of Canada.

Low-Inflation Debate

The low-inflation policy of the ​Bank of Canada in the 1990s rekindled the dispute between Keynesians and monetarists. The latter welcomed the shift to inflation rates averaging two per cent or less, arguing this laid the foundation for strong future Canadian growth. Keynesians remained skeptical about any long-run gains while lamenting the high unemployment costs of the anti-inflation policy.

In 1988, Bank of Canada Governor John Crow delivered a speech at the University of Alberta that has been dubbed the "Edmonton Manifesto," in which he announced the central bank was adopting the doctrine of price stability as the cornerstone of monetary policy. That is, inflation would be kept to negligible levels that would not affect economic decisions by Canadians. Price stability was a controversial policy because many people believed interest rates were being kept far too high for the economy to continue healthy growth.

In 1991, the central bank, with the government's approval, adopted inflation targets of 1-3 per cent as official monetary policy. The Bank of Canada believed inflation targets would help consumers and financial markets better understand its policy goals. At the time, the aim was to lower inflation from five per cent, a 1990 high, to two per cent by 1995. The policy worked well and the two per cent target was reached several years early. Two per cent remained the Bank of Canada's inflation target as of 2014.

Central Bank Governors

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The money supply is that portion of the financial wealth of Canadian households which has enough liquidity to be considered money. At the least it includes ​coin, currency, and chequing-account deposits in chartered banks, all of which have perfect liquidity in that they represent, at face value, an immediate means of payment for purchases made.

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This website provides a variety of learning modules with the goal of improving Canadians understanding of money and the financial system.

I chose this website as it is unique in that it provides structured learning modules specific to the Canadian financial system. I find the learning module on exchange rates to be the most useful as I was unaware of how exchange rates enable monetary policy. Canada has what is known as a flexible exchange rate which permits the Bank of Canada to pursue independent monetary policy that is best suited to Canada’s economic circumstances. A flexible exchange rate means the foreign exchange market determines the worth of the Canadian dollar.

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Making the world of money and monetary policy more understandable View Learning Modules

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This video includes the Bank of Canada’s response to a reporter’s question regarding the impact cryptocurrencies may have on the Bank’s monetary policy. The Bank acknowledges the rise of cryptocurrencies as they have grown in popularity and becoming a more relevant alternative to fiat currencies. However, the Bank does not see cryptocurrencies replacing the Canadian dollar anytime soon as there are so many variations and the volatility of their prices makes it difficult to conduct regular transactions.

What I found most useful in this video is the fact the Bank is acknowledging the relevance of cryptocurrencies and explained that they are conducting internal studies into creating a cryptocurrency that could potentially be issued by the Bank of Canada in the future.

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"Is Bitcoin in a Race With The Bank of Canada Over Monetary Policy?" Deputy Governor - March 23 2021

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This is a video published by the Bank of Canada and details how the institution operates to protect the economic welfare of the nation. The video explains how the Bank aims to protect the purchasing power of the Canadian dollar by controlling inflation.

The piece of information in the video I found most useful was the explanation around how interest rates impact inflation. When interest rates are high, borrowers are less inclined to borrow and savers are more inclined to save. This will tend to lower inflation and vice versa when rates are low. It is interesting to understand how the bank can influence inflation by changing interest rates.

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In plain language, then Governor Mark Carney and eight Bank staffers describe how this complex institution promotes the economic welfare of all Canadians.

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This video provides an overview of the monetary policy at the Bank of Canada focusing heavily on the tools used by the Bank to implement their policy. The tools include changing the monetary base, changing reserve requirements, calling or extending loans to chartered banks, and changing interest rates.

I found this video useful as it provided an easy to understand explanation of the various tools the Bank has at its disposal and how it will use each depending on the type of economic environment we are in. I found the most interesting part of this video to be the explanation on controlling money supply and how this is accomplished by changing reserve requirements at chartered banks. A higher reserve ratio will decrease the money supply and a lower reserve ratio will increase the money supply. The reserve ratio is a specified percentage of deposits that the bank must hold onto rather than lend.

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Monetary Policy and the Bank of Canada -- 2020

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This video discusses the impacts of quantitative easing and speculates on the possible outcome when it stops. The Bank of Canada has implemented unprecedented quantitative easing measures, as have most Central Banks, in response to the COVID-19 pandemic. The purpose of this was to provide liquidity to the markets to ensure they remained stabled. As a result of the easing measures long-term interest rates have come down. With longer duration assets yielding such low returns this has forced investors to move up the risk spectrum in search of better returns. The concern is these measures have created potential bubbles in many markets from real estate to stocks. The big unknown is what will happen when the easing measures stop, and the Bank begins to unwind the balance sheet.

I found this video useful as it helped me to understand how quantitative easing can impact the structure of different markets and the serious implications that could result should the easing stop. I think it is very interesting how the Bank of Canada was so quick to implement these measures but don’t seem to be concerned about the impact when they eventually have to unwind all the assets they purchased. It seems like the Bank is running out of options in terms of monetary policy.

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The impact of central bank assets and quantitative easing

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This image provides a visualization of the quantitative easing process the Bank of Canada has implemented as part of their monetary policy. I find the image useful as quantitative easing can be a complex process to understand and this image really simplifies the process. Essentially, quantitative easing is a method the Bank of Canada implements to stimulate the economy by lowering yields to encourage borrowing and thereby increasing spending to increase inflation.

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This image depicts the value of assets on the Bank of Canada’s balance sheet at the beginning of 2021. I find this image useful as it clearly illustrates how drastic the quantitative easing measures taken by the Bank are. These measures were implemented as a response to the COVID-19 pandemic in an effort to stabilize the Canadian economy. We are in unprecedented times in terms of monetary policy actions taken and it is interesting to think how the Bank will unwind the balance sheet and what the future implications may be for Canadians.

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Reflective Questions