The Impact of Monetary Policy on Inflation in the Canadian Economy - Research Paper Example

There is a uniform or universally acceptable structure or model for devising the monetary policy of an economy, and depending on the particular characteristics and issues faced by an economy and the dynamics of national and international financial markets, every country designs its monetary policy in its way (Bernanke & Mishkin, 1997).

The objective of intervention in the economy by a country’s government through monetary policy has been largely to influence varying macroeconomic indicators, as mentioned in the previous paragraph; however, the techniques and methods of doing so have revolutionized continuously, which are built upon the conventional mechanisms of controlling inflation, unemployment rates and other variables (McEachern, 2011). The most important change noted in the techniques used to control macroeconomic variables through monetary policy is the shift from direct controlling of the money supply through the direct intervention of Central Banks to indirect controlling and depending upon market mechanisms and forces to act favorably (Hirschey, 2009; Nadal, 2001).

Keeping in view this background, the present study aims at determining the relationship between monetary policy and inflation trends, with particular reference to the Canadian economy. In this regard, the following research question has been formulated, which will be answered based on the analysis conducted by the researcher in this report. Research Question The research question, which is to be answered in this study based on analysis and findings, is: What is the nature of the relationship between monetary policy and inflation, with specific regard to the Canadian economy?

Keeping in view this research question, this study can be considered an important contribution to the existing literature about the relationship between monetary policy and inflation in the Canadian economy. Moreover, the fact that this study includes the application of various macroeconomic factors and policies, it can therefore be regarded as important research work for individuals interested in exploring the macroeconomic environment of Canada and how different factors correlate in a practical environment.

Research Method Adopted There are two broad approaches to carrying out research work, which include qualitative and quantitative research approaches. A qualitative research approach requires the researcher to assess information based on its qualitative attributes and aspects. The qualitative research approach may not necessarily produce quantitative results, as it does not make use of quantitative analysis of the information.