Watching the Bank of England Inflation Report Press Conference webcast this week, the subject of whether a monetary policy mistake was made in the aftermath of the Brexit vote in June loomed, with questions from Ben Chu and others. This potential mistake is the corollary of the August 2016 forecast that, ex post, has turned out too gloomy.
Aside from the substance of this particular issue around Brexit, it struck me again how reluctant central banks are to discuss their current plans in terms of responses to things they have already done that ex post look like mistakes, and even ex ante might have been mistakes.
Mervyn King, former BoE Governor, used to bat away questions with this kind of implication with words like ‘it’s for you to judge us‘.
There is certainly a trap that can be fallen into if one marks ones own performance in public. (Of being too kind to oneself). But, there could be big advantages in terms of clarifying current policy strategy, and enabling scrutiny and accountability. My experience was that the reluctance wasn’t about problems in facing the public with this: there was no appetite internally either to couch the analysis of policy in terms of past policy mistakes.
Analytically, extracting the monetary policy mistake and responding to it is important. In the BoE and other central banks’ models, a monetary policy mistake demands its own particular response from monetary policy today [and in the future]. And one potentially different from a re-examination of some other disturbance, say to the supply side.
One place where mistake-silence causes a problem is in the communication by and perhaps even decisions by the dissenters. It used to baffle me how dissenters would position themselves a consistent x basis points away from the consensus. Each time their vote was overruled, they ought to be noting a monetary policy mistake demanding its own response. This was not spoken about. And if it was accounted for, something else in the analysis came along to perfectly offset the amplification of the dissent that you would expect to get as a vote was overruled again and again.
The invitation by the Treasury Committee for written submissions evaluating the BoE’s policy is a welcome counter to this state of affairs. I hope it does not prove to be a one off.
For one thing, my own submission will make the point that it was a mistake for the BoE to refuse to characterise its own evolving strategy in terms of (perhaps perfectly forgiveable) past mistakes.