Effect of Monetary Policy of Canadian Economy
The monetary report of January 2016 brings to light the performance of the global economy and the effect to the Canadian economy. Shifting terms of trade dominated the economic outlook. While major central banks in the world continue expanding their monetary stimulus, the U.S Federal Reserve started withdrawing it. This shows an improvement of the labor market hence inflation rates will reach the two percent target. The global economy forecasts a decline in oil prices which over time would boost global activities in the economy. The report also showed that China is transitioning into sustainable growth.
Global low economic prices largely impacted the Canadian economy making it weaker. The value of the Canadian dollar declined as well as its terms of trade. This realization has caused a major readjustment of capital and labor. In terms of capital, due to weaker commodity prices investment has reduced. There is higher unemployment due to loss of jobs and hence has affected production. However, the non-resource sector has remained strong and it will drive the economy.
Since the non-resource sector drives the economy, fiscal and monetary policies gear towards increasing and readjusting capital to it. Being a long-run strategy, economists forecast that this trend will pick up in the year 2017. However, the country has managed to retain lower inflation rates, near the targeted two percent. Demand has declined due to low housing costs of borrowing but has increased household consumption.
Conventional and Non-Conventional Monetary Policies
Conventional monetary policies involve central banks trying to minimize the exposure of their balance sheet to any liquid operations. The central bank does not involve itself directly in lending to the private sector or to the government. It also does not purchase directly government bonds or any other bonds of instrument. It manages this liquidity levels in the market through managing the interest rates and stabilize prices in the market. This has been a reliable mechanism to provide enough monetary incentive during economic downturn. It manages inflationary pressure and ensures that money markets function in a sound environment.
However, most times this is not the case and the central bank might resolve to unconventional policies. These are policies that aim at the cost of finance and its availability to banks, non-financial institutions, and households. They are in the form of loans, fixed-income equity, or bank liquidity. This happens when the nominal interest rate needs to be zero due to powerful economic shocks. Monetary policies that can change market environment at zero interest rates include; providing guidance to medium and long-term interest rate expectation, expanding the balance sheet of the central bank or altering the composition of the central bank balance sheet. These policies improve the finances of banks beyond the short term.
The central bank can still use unconventional measures even when the interest rates are above zero. However, this happens when the transmission of monetary policy is not functional. In these circumstances, the central bank can either reduce the rates lower than during nominal situation or meddle directly in the transmission by using non-conventional measures.
Tools the bank can use unconventionally include; expanding its balance sheet size. It can purchase long-term government bonds from banks. This policy assists in declining the private securities issues with respect to government bonds. It also enables long term investments hence increasing demand and supporting stability of prices.
Data on Labor Force
Data on participation rates of men and women over 15 years from 1976-2016
The data above shows the participation rate of men and women in the economy who are over 15 years. The data above shows that the participation rate of men is higher than that of women. Participation rates of men was highest in 1976 and it decreased at a decreasing steady rate to its lowest in 2016. On the other hand participation rate of women was lowest in 1976 and it increased steadily over the years.
The data shows the change of chores where women are becoming active participants in the economy. However, this rate is lower than that of men. Men remain active participants in the economy but their rates are declining.
Data on unemployment of men and women over the age of 15 from 1976-2016
The data above shows the unemployment rate of women and men over the age of fifteen over a span of forty years. The age represents the most active and employable age and hence a reflection of the performance if the economy. Unemployment rate in men is higher than of women. The trend shows the increase in unemployment over years of recession. However, the rate averaged at 11% at its highest and 7 % at its lowest. The declining unemployment shows that the economy is growing since there is more production.
Data on unemployment rates of men and women between 15-24 years from1976-2016
Data used above
The data above shows the unemployment rate of men and women aged 15-24 years over a span of forty years. The data shows that in Canada, there is high unemployment rate of men than women. Unemployment rate of women averaged on about 13% while that of men averaged around 18%. However, on average of both gender, unemployment rate is around 15%. Therefore, a significant number of the Canadian population has jobs and hence there is increasing economic growth.
Data on employment rate of men and women between 15-24 from 1976-2016
Overall, the employment rate increased for both men and women despite the recessions. Generally, employment rates remained the same at about fifty-seven percent. There is rapid growth of employment among women than men. Employment in women rose from 51.2 % to 53.2% surpassing that of men. The age bracket of both gender is the active population. Their numbers show the performance of the economy through the most active age.
