386 PA R T V Central Banking and the Conduct of Monetary Policy INSIDE THE CENTRAL BANK Role of the Bank s Research Staff The Bank of Canada is the largest employer of economists in Canada What all these economists do? The most important task of the Bank s economists is to follow the incoming data from government agencies and private sector organizations on the economy and provide guidance to policymakers on where the economy may be heading and what the impact of monetary policy actions on the economy might be Moreover, the Bank s economists maintain large econometric models (models whose equations are estimated with statistical procedures) that help them produce forecasts of the national economy, and brief the governor and the senior management of the Bank on their forecasts for the Canadian economy Because of the increased influence of developments in foreign countries on the Canadian economy, the research staff produces reports on the major foreign economies They also conduct research on developments in the foreign exchange market because of its growing importance in the monetary policy process and to support the activities of the Bank s foreign exchange desk Staff economists also engage in basic research on the effects of monetary policy on output and inflation, developments in the labour markets, international trade, international capital markets, banking and other financial institutions, financial markets, and regional economy, among other topics This research is published widely in academic journals and in Bank of Canada publications Bank of Canada publications, such as the Annual Report (published in March each year), the Bank of Canada Review (published quarterly), the Financial System Review (published in June and December), the Bank of Canada Banking and Financial Statistics (published monthly), the Monetary Policy Report (published in April and October), and the Monetary Policy Report Update (published in January and July) are good sources of supplemental material for money and banking students Another important activity of the research staff is in the public education area Staff economists are called on frequently to make presentations to the public since it is the government that must answer to Parliament This system of joint responsibility dates back to 1967 when the Bank of Canada Act was amended to give responsibility for monetary policy to the government HOW I N DE PE N DEN T I S TH E BAN K OF CAN ADA? When we look, in the next three chapters, at how the Bank of Canada conducts monetary policy, we will want to know why it decides to take certain policy actions but not others To understand its actions, we must understand the incentives that motivate the Bank s behaviour How free is the Bank from the whims of the government? Do economic, bureaucratic, or political considerations guide it? Is the Bank truly independent of outside pressures? Stanley Fischer, who was a professor at MIT and is now governor of the Bank of Israel, has defined two different types of independence of central banks: instrument independence, the ability of the central bank to set monetary policy instruments, and goal independence, the ability of the central bank to set the goals of monetary policy Unlike the U.S Federal Reserve and the European Central Bank