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

9

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): 3 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.