Current monetary policy implementation approach

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Unlike its current monetary policy implementation approach, suppose the Bank of Canada (BOC) does not set a target for the overnight interest rate. In addition, suppose the BOC does not procide standing facilities - the BOC would not lend funds overnight to the banks, nor would the BOC pay interest on funds that banks left on deposit at the BOC overnight. Finally, suppose the BOC does not engage in Settlement Balances Management, that is, it initially selects some level of settlement balance 'S' but does not respond to "autonomous" changes in the level of settlement balances

Under this operating procedure, use a Supply and Demand diagram to show how the overnight interest rate (iON) would be determined.

Reference no: EM132407222

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