MNI: Keep Bank of Canada Mandate Renewal Narrow, Advisers Say

The Bank of Canada should be cautious about venturing beyond the current 2% inflation target because explaining any shift to the public is difficult and there's risk of taking on goals it can't accomplish, a panel of prominent advisers said during a debate Tuesday.

"The current system has been working very well," said Chris Ragan, director of McGill University's Max Bell School, which hosted the debate about policy options. "When you start talking about price level targeting or GDP targeting then I think communication gets very difficult" said Ragan, a former BOC and finance department adviser, consistent with what he told MNI last year. The Fed's move to average inflation targeting hasn't come with a specific timeframe and central banks face challenges if inflation is missing the target around the end of the averaging period, he said.

The BOC in 1991 became the first G7 nation to target inflation and for most of that time has set a 2% goal that's reviewed every five years in a joint agreement with the federal government, a system that's led to better price control than its peers. Governor Tiff Macklem has suggested the bar for change is high while the BOC has studied average inflation targeting, price-level targeting, a dual mandate to take on employment and GDP targets.

"People felt there were very serious communication issues" with options around targeting GDP, financial stability or price levels, said Michelle Alexopoulos, a University of Toronto professor who was a key speaker at a prior conference the BOC hosted on mandate renewal. "The central bank does run the risk of losing credibility" by chasing multiple targets, she said.

Stephen Gordon, a Laval University economist who has also spoken at the BOC on mandate renewal, said "if a central bank has more than one priority, then it doesn't have any, and that's my concern about bringing in anything else."

Alexopoulos and Ragan also said elected governments are better placed to tackle employment and it's overly heroic to say central banks can make a big difference. The BOC already has flexibility to meet its goals and can often generate better employment outcomes while stabilizing inflation, Ragan said.

History shows central banks are able to account for employment and inflation and today's focus on prices can be seen as "indifference" and having "narrow blinders," said Mario Seccareccia, a University of Ottawa economics professor. Finance Minister Chrystia Freeland has said little about the renewal in a year dominated by the pandemic and an election, while supporting an independent central bank.