What limits the Bank of Canada's ability to steer the economy to avoid both recession and inflation?

 

The Bank of Canada lacks the ability to directly regulate labor or product markets due to its ultimate accountability towards the parliament. This is because the Bank of Canada is owned by the government and though it has a considerable level of independence, it is entirely accountable to the parliament.

The Bank of Canada has a limited role in regulation and oversight of parts of the financial system since it lacks the ability to set spending or taxation priorities for any level of government in Canada.

Also, the Bank of Canada is unable to control money supply directly due to the deposit portion of the money supply is dependent on decisions made within the private banking system.

The Bank of Canada also depends on only one policy instrument even though there are several economic variables which influence monetary policy decisions.

All these factors combined, limit the Bank of Canada from its ability in steering the economy to avoid both recession and inflation