Experts Suggest Ways To Improve BOC Communication,Transparency

By Yali N'Diaye

     OTTAWA (MNI) - The Bank of Canada's communication has made the headlines

following its decision to hike its key policy rate on September 6 following

weeks of silence that angered some economists.

     In particular, BMO economist Doug Porter said the central bank's

communication was an "epic failure", a view largely relayed by the press.

     However, Scotiabank Chief Economist Jean-Francois Perrault said during a

panel discussion Thursday at a BOC workshop on monetary policy framework that

such comments did not necessarily reflect people's thoughts. 

     Still, there was no lack of ideas among panelists, some of them former

central bankers, to improve the BOC's communication, if not through quantity, at

least in quality.

     There is an "underappreciated" link between transparency and credibility,"

said Pierre Siklos, professor of economics at Wilfrid Laurier University.

     As far as the BOC is concerned, credibility and trust are "high" but

"fragile", he said.

     Part of a greater transparency is to make discussions such as the renewal

of monetary policy framework more accessible to the public.

     It is key to keep the debate about policy framework public as opposed to

keep it in closed circles of experts, said Stephen Gordon of Laval University,

adding that 2016, when the last five-year inflation agreement was renewed, was a

"missed opportunity."

     "We have to broaden the debate" he said, bring it to different places and

audiences.

     In addition, the BOC could also engage more often with the public, said

Kevin Carmichael, a former journalist now senior fellow at the Centre for

International Governance Innovation.

     He also called for a press conference following each of the eight interest

rate announcements a year, instead of just giving them the days when the

monetary policy report is published (four times a year).

     The way information is communicated matters too, with room for improvement

as well.

     Michelle Alexopoulos, professor at the Department of Economics of the

University of Toronto, said forward guidance should not be left to times of

crisis, which goes against what BOC Governor Stephen Poloz has said in the past.

     Given "consistently", in both good and bad times, she said, conditional

forward guidance is a "viable" tool, provided it is well communicated.

     Others called for an approach providing ranges of possible outcomes when

presenting scenarios, like "trusted" physicians or weather forecasters would do,

amounting to a stress test of monetary policy.

     And "don't forget minutes" of the monetary policy council, said Lars

Svensson, professor at Stockholm School of Economics and a former deputy

governor of the Swedish Riksbank.

     The BOC does not publish minutes of its meetings, making it an exception

among G7 central banks.

     Svensson made recommendations on what transparency and communication should

be with forecast targeting, in which the central bank should justify its choice

by showing the consequences of alternative policy-rate paths.

     For the decision process to be complete, it should explicitly discuss

policy rate paths, he said. 

     Taking an example from the MPR published in July by the BOC, Svensson said

it provided "as little information as you could possibly give."

     He referred to a box about base-case projections, in which the BOC had

said: "The neutral nominal policy rate in Canada is estimated to be between 2.5

and 3.5 per cent. The current projection is based on the midpoint of this range,

which is unchanged from the April assumption."

     But for Svensson, who favors inflation forecast targeting, without a policy

rate path, the central bank is "hiding the most important information."

     For Athanasios Orphanides, former governor of the central bank of Cyprus

and currently a professor at MIT Sloan School of Management, where the BOC can

improve its communication is to make it more systematic and predictable.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]