THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 421

CHAPTER 15 Central Banks and the Bank of Canada 389 THE CHAN G IN G FACE OF T HE BAN K O F CA NADA The legislation governing the Bank of Canada s responsibility for monetary policy has remained relatively unchanged since the Bank Act of 1967 Over the past decade, however, the Bank has undertaken a broad range of initiatives and made significant institutional changes to the way it operates The impetus for change came from the interaction of experience and economic theory, the desire to explain and build confidence in the Bank s actions, and (to a smaller extent) from technological change and globalization Clarifying objectives is an important starting point for any successful monetary policy framework The legislation by which the Bank of Canada is governed does not facilitate a clear understanding of objectives For example, the preamble to legislation governing the Bank refers to multiple, and potentially inconsistent, policy objectives Over the past few decades, however, the performance of the Canadian economy, together with the evolution of economic theory, led to the view that price stability is the most important goal of monetary policy As John Crow put it, in his January 1988 Hanson Memorial Lecture at the University of Alberta, [t]heory and experience much of this experience not overly cheerful but certainly instructive both point to a very clear answer Monetary policy should be conducted so as to achieve a pace of monetary expansion that promotes stability in the value of money This means pursuing a policy aimed at achieving and maintaining stable prices The Hanson lecture was designed to explicitly identify price stability as the objective of Bank of Canada policy This message was reinforced on February 26, 1991, through a joint announcement by the governor of the Bank and the minister of finance regarding the establishment of formal inflation targets (to be discussed in detail in Chapter 18) Clearly defined targets can be appealed as an institutional way of improving the macroeconomic outcomes of monetary policy The effectiveness of such an institutional framework, however, depends on two fundamental requirements: independence and accountability Although the Bank of Canada has not been given goal independence the goal of price stability has been set jointly by the Bank and the Department of Finance over the last decade the Bank placed increased emphasis on its responsibility to achieve the goal of price stability and its greater freedom to take whatever action is needed to so This freedom is referred to as operational (or instrument ) independence and, although it hasn t been explicitly legislated, it exists in practice Increased operational independence has also raised the standards for accountability As already noted, for example, the governor of the Bank has delegated the authority for monetary policy decisions to a committee the six-member internal Governing Council Moreover, it has become a de facto standard for the governor to appear before a parliamentary committee following the release of the Bank s Monetary Policy Report The Bank of Canada has also improved its communications activities by moving towards greater transparency in its operations and objectives In 1999, for example, the Bank started a twice-yearly Update to the Monetary Policy Report, both published by the Bank s Governing Council The Monetary Policy Report is published every April and October while the Update is published every January and July, giving an account of the Bank s management of monetary policy Moreover, the Bank has noticeably increased the number of press conferences, press releases, and speeches, and also reorganized its regional offices in 1996 1997 with the objective of improv8 John Crow, The Work of Canadian Monetary Policy, The Eric J Hanson Memorial Lecture, University of Alberta, Edmonton, Alberta Bank of Canada Review (1988): 17