The Nature of Monetary Policy and its Application to the Canadian Economy

Abstract

The object of this paper is two-fold. Firstly, it endeavours to present a general study of monetary policy. Secondly, it attempts a detailed description or analysis of a particular period. Chapters one and two consider the nature of monetary policy, chapter three, the circumstances surrounding its implementation and chapter four is a survey of Canadian monetary policy from 1955 to 1965. The plan is to proceed from the general to the particular. Thus, when the actual events are presented in chapter four, it is possible to derive an appreciation of the underlying factors and complexities so that any conclusions one may wish to form can be done with perspicacity. Chapter five is a concluding chapter which serves as a summary to the paper, an outline of the salient points, and a statement of the observations made and the conclusions arrived at. Monetary policy has been the object of considerable discussion in recent years. Within a period of five years, from 1959 to 1963 inclusive, the United Kingdom, United States, and Canada prepared major studies of their financial systems. The studies (Commissions) were undertaken in response to the growing concern over the ability of financial systems to contribute to the economic advancement of their countries. Monetary policy is an integral part of the whole of the financial structure. And as the financial system progresses and new elements are introduced, monetary policy must take account of such changes and introduce its own new elements. In addition to the many studies carried out by these Commissions the literature on the subject is indeed abundant. The dominant characteristic of the writings on monetary policy is controversy. Controversy stimulates discussion but unfortunately not always illumination. It is hoped that what follows can serve to shed some light on the intricacies of monetary policy.