THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 422

390 PA R T V Central Banking and the Conduct of Monetary Policy ing communication, transparency, and its assessment of economic conditions across Canada For example, the Bank s regional offices, by maintaining contact with provincial governments, industries, and the general public, present quarterly grassroots assessments of current and prospective economic developments to the Bank s Governing Council information that complements economic projections prepared by the Bank s staff Finally, the Bank of Canada maintains a comprehensive website (at www.bankofcanada.ca) to disseminate information regarding financial statistics, publications, the transmission of monetary policy, and Bank-related material.9 The direction taken in the recent evolution of the monetary policy framework in Canada has been heavily influenced by the role that the institutional monetary structure plays in influencing the monetary conduct.10 As the Bank s former governor, Gordon Thiessen, put it in his October 17, 2000, speech to the Faculty of Social Science of the University of Western Ontario, [t]he Bank tries to work with the markets, rather than against them, to avoid surprising them with unexpected actions Greater transparency facilitates the policy-transmission process by conditioning market expectations, and helps avoid unnecessary confusion about the reasons for our actions 11 From Opaqueness to Accountability and Transparency The Bank of Canada did not release information regarding its guidelines or resulting consequences during the 1960s and 1970s As a general rule, the Bank wanted to remain nontransparent, keeping its monetary policy approaches secret The use of multiple instruments and goals, vague statements about its policies, and moral suasion with banks, resulted in an unnecessary level of secrecy Due to this instrument and goal opaqueness, the public was not able to question or comprehend the Bank s actions, allowing the accountability of the Bank of Canada to deteriorate Over the past decade, however, the Bank of Canada has rejected multiple policy instruments by adopting the overnight interest rate as the centrepiece of its monetary policy implementation and by focusing on an explicit inflationcontrol target The goal of the Bank s current monetary policy is to keep the inflation rate within a target range of 1% to 3%, with the midpoint of the inflation target range, 2%, being the most desirable outcome; the 1% to 3% target range for inflation applies until the end of 2011 By announcing a target overnight interest rate, establishing planned dates for policy changes, and implementing the Governing Council for making decisions and disclosing information, the Bank of Canada has moved towards greater accountability and transparency The Bank s move towards accountability and transparency was motivated by a number of recent trends in society and the economy For example, the shift from fixed to flexible exchange rates removed an obstacle to openness The experience with inflation in the 1970s and the recession in the early 1980s allowed the Bank An inside view of how the Bank interacts with the public and the politicians can be found in John Crow, Making Money: An Insider s Perspective on Finance, Politics, and Canada s Central Bank ( John Wiley: Toronto, 2002) 10 For a discussion of similar changes implemented by other central banks around the world, see Graydon Paulin, The Changing Face of Central Banking in the 1990s, Bank of Canada Review (Summer 2000): 13 11 Gordon Thiessen, Can a Bank Change? The Evolution of Monetary Policy at the Bank of Canada 1935 2000 Lecture to the Faculty of Social Science, University of Western Ontario