PA R T V Central Banking and the Conduct of Monetary Policy 25 Canada United States 20 Interest Rate (%) 15 10 F I G U R E 18 - 2011 2006 2001 1996 1991 1986 1981 1976 1971 1966 1961 1956 1951 1946 1941 486 Interest Rates (90-Day T-bills), Canada and the United States, 1941 2009 Source: Statistics Canada CANSIM II Series V122541, and Federal Reserve Economic Data (FRED) (about one year) in advance the target path for the growth of M1 and then adjust policy during the course of the year to make the actual growth rate lie within the target range The rationale for announcing the monetary policy targets in advance was to influence people s expectations, with the hope that this would help bring down actual inflation faster than otherwise Moreover, the Bank decided to target M1 because it was the most prominent measure of money with a very stable demand As can be seen from Table 18-2, the Bank of Canada was successful at keeping actual M1 growth within the target range, and the goal of reducing M1 growth TA B L E - Canadian M1Target Ranges and Actual Growth Rates for 1975 1980 Announcement Date Base Period November 1975 April June 1975 M1 Growth Target (%) Outcome (%) 10 15 9.3 August 1976 February April 1976 12 7.7 October 1977 June 1977 11 9.3 September 1978 June 1978 10 5.1 December 1979 April June 1979 5.9 February 1981 August October 1980 0.4 Notes: Outcomes are annualized growth rates (%) of seasonally adjusted M1 between the base period and the next announcement of new targets For example, the outcome corresponding to the November 1975 announcement is the annualized growth rate of M1 between April and June 1975 and August 1976 Source: Ben Bernanke and Frederic Mishkin, Central Bank Behaviour and the Strategy of Monetary Policy: Observations from Six Industrialised Countries NBER Macroeconomics Annual (1992): 183 228 Reprinted with permission of the authors