I was in a meeting all morning and don’t have that much time this afternoon, so I should offer a special thanks to the Reserve Bank for suggesting a topic for today’s post. It is prompted by this tweet, which turned up in my feed just as I was about to head into my meeting
The Bank used to use Twitter for not much more than sending out links to press releases etc. But they seem to be trying to use it more actively, with a strategy (if any) that is less than entirely clear to the outsider. For example, a couple of weeks ago there was the invitation to us all to submit questions via Twitter for the Governor’s MPS press conference – which went rather badly when they only took two questions that were reframed as soft platforms for the Governor to declaim on some or other favoured topic. Yesterday, there was a puff piece telling the world that the Bank was now 43rd most favoured employer for graduates in New Zealand. I suppose that didn’t sound too bad – small organisation and all that – until I clicked on the link and found that the Bank came in behind 11 other government departments and a couple of local government entities. Oh well, thanks for letting us know I guess.
This morning’s tweet has the potential to be quite a bit more concerning, on several counts. Most concerning is that it reads as a statement of the institution’s view – that of the MPC? – on matters directly relevant to monetary policy, launched into the ether with no notice at all. That is no way to do monetary policy – or rather it was the sort of way we did monetary policy 25 years ago, before we moved to a clearer, more scheduled, more predictable system. This might seem like only a picky inside-the-Beltway issue, but this isn’t way things should be being done. It would be interesting to know whether the MPC were consulted, or even advised, that a statement on the economic outlook was about to be made.
More substantively concerning is the content of the comments, perhaps especially when released in the middle of one of worst financial market trading days in several years. Look at the substance of their new text: “we expect activity will pick up later this year, meaning more investment, more jobs, and higher wages”. The link is to their cartoon summary of the Monetary Policy Statement, released almost two weeks ago, based on forecasts finalised almost three weeks ago. Those were forecasts based on very short and quite limited negative coronavirus effect. Those are the forecasts today’s statement links to. How can they possibly still be the MPC’s best view now, when a growing range of medical experts now expect the virus to go round the world, infecting (in time) perhaps 40 to 70 per cent of the world’s population, with attendant disruption and uncertainty? At very least, the risks to the happy upbeat story must be much more serious than the MPC thought them two or three weeks ago.
My guess is that the tweet wasn’t really intended as monetary policy and related economic commentary at all. My guess is the MPC wasn’t aware of it, and quite possibly the Governor was not either. Perhaps someone down the organisation running the Twitter account just thought it would be a good idea to tell us a bit more about the Bank (“we do forecasts”). But official communications need to be managed better than that – an excellent central bank, best in the world, would certainly do so.
Excellent central banks also communicate carefully and precisely about things bearing directly on their mandate. A reader yesterday drew my attention to (something I’d missed) the way the Reserve Bank is falling short there too. A good example was in the cartoon summary of the latest MPS, linked to in that tweet, where I found these
It isn’t just the cartoon version either. Here from the MPC’s minutes
The Committee agreed that recent developments were consistent with continuing to meet their inflation and employment objectives
And my assiduous reader tells me the same phrasing pops up in comments made by the Governor, and in the last few MPS rounds as well.
Can you tell me what the Reserve Bank’s employment target is?
Trick question, as there isn’t one.
The MPC and the Governor surely know this, as their Remit – the mandate set for them by the Minister of Finance – is reproduced at the start of each Monetary Policy Statement. Here is the central section
The current Remit sets out a flexible inflation targeting regime, under which the MPC must set policy to:
• keep future annual inflation between 1 and 3 percent over the medium term, with a focus on keeping future inflation near the 2 percent midpoint; and
• support maximum sustainable employment, considering a broad range of labour market indicators and taking into account that maximum sustainable employment is largely determined by non-monetary factors.
There is a clear and measureable inflation target, basically the one we’ve had for almost 20 years now.
And then there is a requirement to “support” maximum sustainable employment – which is, more or less, what monetary policy tends to do when it acts to keep inflation near the inflation target. There simply is not an employment target, so what are the Governor and MPC doing claiming that they’ve met this non-existent target. It might be quite reasonable for them to argue that they believe they’ve done what they can to support keeping actual employment near maximum sustainable employment – reasonable people might differ from them on that, but the debate would then be around an explicit mandate the Bank has been given.
Perhaps to many the loose language will seem harmless. And perhaps when we are near to full employment it does little damage, but that won’t always be the case. Come the next serious recession, unemployment will rise a lot/employment will fall a lot. The Bank will do what it can to lean against those changes, but it won’t be failing – not hitting a target – just because the unemployment rate is high, perhaps even for several years (especially if the limits of monetary policy are reached). More generally, it creates a sense in which someone there are equally important employment and inflation targets, when the Minister of Finance – the one responsible for setting the target – has clearly specified otherwise.
Mostly, it is probably some mix of sloppiness and the Governor’s ongoing efforts to play the “tribune of the masses” card. And we should expect (demand) better than that from the Governor and the MPC – especially in formal written documents, whether aimed at the “specialists” Orr affects to despise or at a wider general audience. You do not need to be sloppy in the use of language to communicate the essence of what you are supposed to be about. From the Bank recently we’ve had loosely-grounded factual claims, outright misrepresentations, and repeated sloppy use of language to misrepresent the Bank’s mandate. I’m guessing it would not go at all well with the Bank’s bank supervisors if they found the banks and financial institutions they regulate operating in so loose a way. Apart from anything else, those supervisors might reasonably ask themselves “if things are this loose in what we see – prepared for the public face – what are things like where we cannot see, inside the organisation”.
These might be issues the Bank’s Board and the Minister of Finance – both charged with keeping the Governor (and MPC) in line and accountable – might be asked about. I imagine they would just run defence for the Bank, but you never know. Perhaps some journalist might approach an MPC member for comment – and if, as most likely would happen, they simply refused to comment then report that stonewalling.