Final answer:
The Bank of Canada's monetary policy since mid-1994 has focused on maintaining low and stable inflation, also known as inflation targeting. This policy framework is designed to preserve the value of the currency and manage price level increases effectively over time, with central banks like Canada's having a legal mandate to prioritize inflation control.
Step-by-step explanation:
Since mid-1994, the operational objective of the Bank of Canada's monetary policy has been to keep inflation low and stable. This is in line with the concept of inflation targeting, a monetary policy framework where the central bank sets an explicit target for the inflation rate and then uses interest rate changes and other monetary tools to achieve that goal. The central bank might also aim to minimize the risk of exchange rate fluctuations and encourage both domestic and international competition. Moreover, the Bank of Canada's approach to inflation targeting seeks to maintain the value of money by ensuring that increases in the price level (inflation) are predictable and manageable over time.
Monetary policy is inherently imprecise because the effects of changes can take time to materialize, banks might hold excess reserves instead of lending them out, and the velocity of money can change unpredictably. While the European Central Bank solely focuses on keeping inflation within a low target range, the U.S. Federal Reserve, for example, is mandated to balance both inflation and unemployment pursuant to its legally recognized goals. By contrast, the Bank of Canada, alongside other central banks in countries such as Austria, Brazil, Mexico, and the United Kingdom, has a clear legal mandate to prioritize inflation control.