Simon Wren Lewis joins in the celebration of the Bank of England’s new blog for staff. But I think he can be read as going a bit too far in divining a message – and discernible dissent – in one of the first posts, by Haberis, Masolo and Reinold.
The Bank Underground compares two simulations of the distribution of inflation, one where the effective lower bound of 0.5 per cent constrains policy, and one where there is no constraint on monetary policy, and highlights the increased probability of deflation in the former relative to the latter. Simon says ‘The blog does not discuss the policy implications, but they are pretty obvious.’ And goes on to explain that these implications are that, faced with such a risk when you are constrained, you should be overshooting the inflation target in the most likely scenario.
Simon clarified on Twitter that he didn’t intend this reading of his words, but, I think some might read him as saying ‘see how subversive the new blog is: they are allowing staff to communicate that they think the MPC should be overshooting the target’.
But there is nothing in the post to tell what the staff think is the most likely simulation. The MPC have said on a few occasions that they ‘have the tools’ necessary to deal with the current conjuncture, which implies that they think they are unconstrained. [Assertions that I think are hard to substantiate btw]. And the staff are careful not to contradict this message. I suppose that the very fact that the constrained simulation is there at all might be interpreted as some sort of oblique hint.
The weighty issue of what one can and cannot read into a Wren-Lewis text aside, I’d give the Bank a ‘could do better’ mark for transparency on this post.
You can see that the senior management have gone with it because they think that by leading with a potentially sensitive topic they are signalling that this is going to be a forum for dissent and free thinking.
However, the very boldness of this signal of intent is contradicted somewhat by the editorial decision to ensure that the authors are silent about the main point. That being, of course: are the MPC to be thought of as constrained, contrary to how they describe themselves? And is their distribution of future inflation given what they have in mind for their instruments too deflation-heavy or not?
[If it isn’t already obvious from the above, I don’t blame the authors for these things at all].