Greater Transparency Needed
Financial market participants would benefit from a better understanding of how the Bank of Canada sets the overnight interest rate in response to economic developments. More accurate forecasts of the Bank’s future policy choices would lead to better financial decisions and better price and wage-setting decisions, making it easier for the Bank to hit its 2 percent inflation target. Currently, the Bank’s internal model predicts a path for the overnight rate that is inconsistent with the expectations of the Bank’s Governing Council. The Bank could achieve greater transparency by publishing its own conditional forecasts of the future path of the overnight rate or, failing that, by publishing such forecasts with a six-month lag. This would enable market participants to better understand what these forecasts mean and how to use them in economic decision-making.
|Date of creation:||Jul 2010|
|Publication status:||Published on the C.D. Howe Institute website, July 2010|
|Contact details of provider:|| Postal: 67 Yonge St., Suite 300, Toronto, Ontario M5E 1J8|
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- Stephen Murchison & Andrew Rennison, 2006. "ToTEM: The Bank of Canada's New Quarterly Projection Model," Technical Reports 97, Bank of Canada.
- Gino Cateau & Stephen Murchison, 2010. "Monetary Policy Rules in an Uncertain Environment," Bank of Canada Review, Bank of Canada, vol. 2010(Spring), pages 27-39.
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