Given their expertise and institutional responsibility for conducting monetary policy, central banks wield considerable 'epistemic authority' as they offer public guidance about future course of inflation.
The 'transparency revolution' in central banking underscores the importance of public scrutiny of monetary policy, and the IMF’s 2020 Central Bank Transparency Code responds to the growing view that transparency simultaneously enhances the accountability and efficacy of monetary policy. Yet this stated commitment to transparency suggests potential tensions between accountability and monetary policy efficacy.
Transparent monetary policy communications serve monetary policy efficacy if they encourage an expectational consensus that a targeted inflation rate will be forthcoming. Successful 'expectations management' can prompt wage and price-setting decisions consistent with attaining that inflation target. However, if monetary policy communications disclose the uncertainties and countervailing pressures that cast doubt on the likelihood that a central bank’s target inflation rate will be attained, this may encourage an expectational context that is detrimental to achieving that target. In this event, fulsome transparency may enhance accountability yet detract from monetary policy efficacy.
This potential tension is particularly noteworthy during turbulent economic events animated by "radical" or Knightian uncertainty (Tuckett et al., 2020) Faced with unprecedented and perilous circumstances which may destabilise a previous inflationary outlook, the public is likely to be influenced by the expert guidance of central bankers. However, at these times, central bank jawboning is incentivised to persuade the public of the likelihood of monetary policy success, which may lead central bankers to interpret transparency standards in ways that enhance the perceived likelihood of monetary policy success. This potential tension will be explored via an examination of the Bank of Canada’s inflation forecasting patterns, with special attention paid to inflation forecasting during the pandemic.
Speaker bio:
Prof. Dr. Ellen Russell is a Professor of Indigenous Studies, Law and Social Justice, Social and Environmental Justice, and Social Justice and Community Engagement at Wilfrid Laurier University in Canada.
Russell became an economist when she realised that economic issues impact so many social issues that she cared about. But despite the importance of economics, it can be daunting to try to make sense of the business and economic coverage in the newspaper. Her goal is to translate economic issues so that the public can understand how economic ideas impact our lives, and to encourage debates about what sorts of economic changes we would like to pursue.
Russell's current research focuses on the formation of economic expectations and the policy consequences of these expectations. She is interested in economic argumentation (academic studies, policy papers, news media reports etc.) and its influence on expectations about the feasibility and desirability of economic alternatives. Her current SSHRC Insight Grant considers the impact of the unprecedented social and political contexts (such as the pandemic and the growing appeals of conspiricism) on argumentative strategies regarding economic and policy change.
Russell’s previous research has investigated the economic rationales employed to justify austerity programs, labour market policies and financial regulation.
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