A monetary mandarin speaks, but not about everything


A sturdy speech for the monetary policy aficionado in all of us was delivered today by Tiff Macklem, the veteran mandarin who recently rejoined the Bank of Canada, where he’s worked before, after a spell at the finance department. And yet I’m left mulling over what he didn’t tell us.

To mark his return as senior deputy governor, Macklem served up some thoughts of what central bankers need to learn from their near-Depression experience of 2008 and 2009, starting with the lesson that “while Canada’s inflation-targeting framework has served Canadians well, this does not mean that we can rely on the commitment to price stability to ensure financial stability.”

He added later on: “If we look only at interest rates, inflation and output, we may miss bubbles and other elements of systemic risk as they build.” That means, he said, central bankers need to better understand banks and other financial institutions, and credit markets, among other factors.

It’s not the first indication we’ve had of the bank thinking beyond the bounds of its traditional preoccupations in the wake of 2008’s traumatic global bursting of financial bubbles. Mark Carney, its dynamic governor, is already the most closely watched figure in Canadian economic policy circles, and the addition of Macklem is another reason to take Carney’s shop very seriously.

But I’m intrigued by the speeches Macklem did not deliver today at Montreal’s old Mount Stephen Club.

Citing how Canada still hasn’t recovered the “lost momentum and opportunity the crisis left behind,” and alluding to the need for better private sector risk management and stronger financial regulation, he demurred from addressing these questions head-on, saying, “But today I want to focus on the lessons of the Great Recession for monetary policy.”

What does Macklem think, though, about those risky practices of private financial institutions and how to regulate them? Since he raises the subject, I can’t help wondering.

And, later on, he touched briefly on the bad old days of the early 1990s, when Canada’s debt was scary high and the worries of foreign investors made it hard to wrestle Canadian inflation into submission. “This offers a cautionary tale to other countries with high and rising debt,” Macklem said. “But that is the topic for another speech.”

Drat. And there I was hoping for a moment that he was about to speak candidly about how Canada’s experiences with recklessly high deficits and crushing debt might instruct, say, Washington policy-makers on how to approach to the same dangers today.

Maybe another time.


A monetary mandarin speaks, but not about everything

    • Ahh well, ideology again. But how people imagined a few govt cutbacks could do all that, I don't know.

  1. It's too bad his inflation targetting section didn't directly address the Chicago Fed's ideas about price level targeting as an alternative to inflation rate targeting. http://blogs.wsj.com/economics/2010/10/05/qa-chic

    • It's really not the Chicago Fed's idea. The Bank of Canada has mulled the idea in the past.

  2. I should bloody guess central bankers need to understand banks and other financial institutions, among other factors. It beggers belief that a high ranking civil servant is suggesting that central bankers have a weak understanding of banking and other financial institutions. I happen to have thought that for a very long time, but I considered my opinion to be fairly fringe. Turns out that my opinion isn`t so fringe after all. I will mark this day on my calendar.

  3. Another useful comment, from our favourite commenter. Look at any post that has any semblance of an idea being discussed and you will see Emily proving her inability to engage with it whatsoever.