With all the lunacy coming from the world’s central bankers since, well, ever, it’s refreshing to hear something (anything!) sensible coming from one of them finally. Bank of Canada Governor Stephen Poloz’s recent announcement that the BoC would stop using forward guidance included all sorts of encouraging tidbits. Canada’s central bank needs to communicate with “full transparency” the risks that it is weighing because, according to Poloz, this “causes the market to assess new information more or less the way as the central bank does.” In effect, he wants the BoC to stop trying to trick investors to get them to do things they otherwise wouldn’t. Poloz is also concerned not just with the risks lurking around the dark corners of the economy, but the uncertainties no will see coming.
As economists and policy makers, we know that uncertainty is everywhere and that it has worsened in the aftermath of the global financial crisis…. I believe that the sort of uncertainty we are dealing with today is more profound than that which is typically subjected to rigorous analysis – that it simply does not lend itself as easily to either mathematical or empirical analysis, or any real sort of formalization.
Of course, the BoC leaves unchanged its commitment to low interest rates, but it’s heartening to see some recognition of the risks involved with this policy. (Cross posted at Mises Canada.)
