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Social Sci LibreTexts

10: Central Banking and Monetary Policy

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  • In this chapter we will explore:

    • 10.1 Central banking & the Bank of Canada
    • 10.2 Central banking operating techniques
    • 10.3 Monetary policy targets & instruments
    • 10.4 Monetary policy rules
    • 10.5 The long-run neutrality of money
    • 10.6 Monetary policy indicators

    This chapter examines the role of the central bank. The central bank is responsible for monetary policy. Its monopoly control of the supply of cash, or monetary base, gives it a powerful influence in financial markets. Sometimes the central bank controls the monetary base to control the supply of money. Other times it controls short-term interest rates. In either case, central bank actions are designed to affect prices, output, and employment. They work through the transmission mechanism that links monetary policy to aggregate demand, as we discussed in the last chapter.