Dear George: Can we have Fed-style transcripts of UK monetary policy meetings, please?

My twitter feed has been stuffed with commentary about the recently released Fed transcripts and debates about the performance of the key personalities on the FOMC.  Apart from being great fun, it has only just struck me how useful these texts are in bringing the participants to life, and in holding them to account.

In the UK, there are no transcripts.  The MPC discussion is recorded pretty much verbatim by a small cadre of talented minute takers.  And then there are subsequent meetings of MPC with the minute takers to determine what it is they want to have recorded about the meeting.  The document describes itself as ‘Minutes’, but that term’s definition does not promise a verbatim report of the discussion, and the document does not deliver one.  Dissent is drawn attention to, and it is very often possible to identify whose views are being referred to.  But the participants don’t speak for themselves.  And we don’t get to see how views got arrived at, the quality of insight used to support them, whether discussion progressed debates or not.

There are considerable advantages to having a distillation of the discussion UK-style released promptly.  It clearly helps the MPC manage the message it wants markets to take from the meeting, and give the appropriate context to the decision.  The ‘what do we want them to think we said?’ model of minute-taking serves as a policy statement accompanying (with a small lag) the decision itself.  To give an entirely hypothetical example, if you wanted to talk the yield curve down, it probably would hinder that process to disclose that most people didn’t want to initially.

It was also feared, by those that had insight into how the Fed or other systems operated, that transcripts would prevent there from being any proper exchange of ideas in Committee discussions.  Members, fearful of looking silly, would simply read from pre-prepared scripts, and not budge from the positions they took up at the outset of the discussion.  Part of the benefit of Committee-based decision-making, goes the folklore, is that this Committee becomes a meta-brain, the sum of which is greater than its parts, able to contribute many competing visions of the problem before them, and resolve them more reliably than any individual person.  Transcripts would destroy this process and reduce it to an opinion poll.  Perhaps pushing the discussion into other fora:  the closed rooms that individual members occupied with their closest advisors.

Here I am less convinced.  The Fed transcripts reveal a committee prepared to challenge each other and probe each others’ ideas.  And my surmise is that there isn’t much more pre-prepared statement-reading or closed-room stuff than in the UK system.  And what the transcripts reveal is something that I had really not appreciated until now.  These records are a great way of providing information about how individual members perform.  As economists;  as interlocutors.  As public servants.   As masters of briefs.  As possessors of intellects capable of adapting to changing circumstances.

This information seems extremely valuable, in several respects.   First, there is the issue of the dual mandate, and the transcript brings to life how the FOMC members grapple with that and weigh the two often competing goals of price stability and full employment.  Second, there is the issue of the shifting threat posed by Congress to the Fed’s independence.  This seemed to be at the fore during the debates about QE, and we must look forward to future transcripts to find out.  Third, there is the issue of the process by which the regional Fed presidents are selected, and the anachronistic role of local private sectors (most acute in the New York Fed, of course, whose private sector constituents comprise the Wall St banks who can benefit from gaming the FOMC in various ways).  The transcripts help communicate to a now very wide audience the nature of the people this system has chosen.  Much more starkly than the accumulation of speeches, so much more premeditated and written with the aid of highly paid, clever advisors.

Finally, there is the issue of career progression.  Many of those on today’s FOMC or today’s MPC would wish to consider themselves as candidates for future vacancies as Vice Chairs, Chairs, or Deputy Governors and Governors.  In the US, the case for the next vice Chair is being affected.    Following this line of thought, it might have clinched the job for Janet Yellen sooner to have her prescient remarks in the early phase of the financial crisis laid bare without waiting the full five years for these transcripts.

In the UK, this information also exists.  But only in the unreliable and jaundiced minds of those of us who watched and worked with the Monetary Policy Committee members.  And it can’t get out.  Getting it out would risk breaching the Official Secrets Act.  And would start a game of ‘your word against mine’, with spectators weighing up the vested interests on both sides of the accusation.   There are Committee members who struggled to grasp macroeconomics and finance, or the arguments of their Committee peers, and there were those that did not.  There are those who were engaged, and there were those who were not.  There were those that showed interest in staff research outputs and those that did not.  There were those that were influential in challenging prevailing wisdom;  and there were those that clearly avoided confronting it.  There were those that were influential in forming and steering the agenda and debate and there were those, by contrast, that simply responded to it.  There were those who liked to reverse-engineer the inflation forecast to fit their predetermined policy view, and there were those who formed their view by seeking to engineer an inflation forecast.  There are those who brought the best out of junior staff and there are those who treated them with disdain and mistrust.  There are those who were able to digest advice, and there were those who were impervious to it.   There are those that worked through their in-trays during staff briefings, and those that did not.  There are those that turned up late, and those that did not.   There are those who stayed awake throughout all staff briefings and there are those that did not.  (Leading to the staff cult game of MPC-snooze-bingo).    Fed-like transcripts wouldn’t disclose all of this, but they would be a step in the right direction.

The UK Monetary Policy Committee’s client is the Treasury.  Some of this information, useful to them in figuring out whether to re-appoint MPC members or promote them, is available.  To them.  There are Treasury observers at a key staff briefing meeting, and at MPC meetings themselves.  But we don’t get to see what they do with it.  We hope that the Treasury weighs appropriately the qualities of MPC members when considering their future.  And manages to shield the process from short-term political considerations.  Sharing with us what they know about how they operated in the monetary policy process would convince us.  In this way, the release of transcripts of monetary policy meetings would seem to offer a way to strengthen the independence of monetary policy.  And generate much free entertainment.  Can there be anything better than looking forward to the first empirical macro paper on the laughter index, which measures the frequency of ‘-Laughter.’ occurring in the transcripts?!

[Update:  Danny Blanchflower tells me there were transcripts recorded of UK MPC meetings, but they are not released.  Mike Bird from CityAm finds out that recordings are made, but deleted after a fortnight, and, picking up on this post urges preservation of this historical record, in his column.]

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No, Paul: OECD carping about structural reform isn’t intellectual laziness

Paul Krugman let off an angry post castigating the OECD for carping about structural reform being necessary to help solve the crisis, and at the same time poking fun at their support for austerity fiscal policies in the Euro Area.  Since structural reform is always a good thing, he thought such carping was ‘intellectually lazy’.

Well, I for one hope the OECD continues to carp about structural reform.  I take this phrase to mean things like;  privatising inefficient state monopolies;  deregulating other product and labour markets;  reforming civil service terms and conditions to conform to euro area standards;  reforming social security systems to make them affordable.

It’s not intellectually lazy to go on about this.  It’s highly pertinent.  For three reasons.

First, it’s partly the lack of such reform that made the crisis as intolerable as it was.  At least in Greece, the structural deficit was what it was because of inefficiencies in the public sector.  With a sounder public sector, Greece would have been better able to withstand a cyclical downturn.

Second, it’s partly the lack of structural reform that deters capital from flowing into the poorer afflicted periphery.  Think of Italy.  Or:  banks in the periphery can’t lend partly because bank funders figure the peripheral sovereign can’t stand behind them because of all the other things they are on the hook for [because of the lack of structural reform].

Third, in an ideal world, the euro area monetary union would operate fiscal risk-sharing and automate fiscal transfers to the periphery in the event of a bad draw for the South.  The bailouts of Ireland, Portugal and Greek were not automated, and nothing like ideal fiscal risk-sharing.  And part of the reason for that was that leaders of countries with deeper fiscal pockets knew it was a hard sell to give their electorates’ taxes over.  It is a much easier sell if those taxes are not going to subsidise foreign state companies or foreign civil services that enjoy easier terms than those set for home equivalents.  After all, if northern electorates were going to give money away for nothing, they’d probably prefer to donate it at home.  Moreover, peripheral country leaders can more easily drive through structural reform if they can explain that fiscal risk sharing is conditional on it.

Motherhood and apple pie are also good, but they aren’t part of the reason the crisis was as bad as it was, and they aren’t going to get us out of it.  [Actually, maybe not true for state-funded apple pie, if you are a Keynesian].

I’ve got much more sympathy for the austerity-fun-poking.  It would surely have been better, if politically infeasible, to have had easier fiscal policy in the South.  But then, that would have required forgiving much more of the peripheral debt, and for northern countries to have sorted out the consequent mess in their own banking systems.  And to do that, for reasons stated above, would have been too hard a sell because of, yes, a lack of structural reform.

Since peripherals ran up the debt partly because of lax regulation in northern country financial sectors, [one eg amongst many: the ECB’s treatment of all sovereign debt as equal in monetary operations], forgiving it would have had an element of fairness too, but try telling that to German voters.

Mario: don’t wait until you ‘see’ deflation

Draghi recently commented that ‘we are not seeing deflation’.  He elaborated.  They weren’t ‘seeing’ people postpone purchases until prices fell.  The ECB were ready to act [presumably when they did ‘see it’].  But there was no need to act further now.

A few points.

1.  It is probably too late if you wait until you are ‘seeing it’.  The time to act is before you see it.  Monetary policy works with long and variable lags, and has to be proactive as a consequence.

2.  The risks of deflation are tangible and mounting.  Analysts reckon that some of the fall in inflation in the euro area is temporary.  But there must be a risk that this fall causes panic, and detaches inflation expectations from the ECB’s target.

3.  This is especially true since the ECB don’t have a tried and tested way to loosen.  They seem unable or unlikely to try QE Fed or BoE style, because of the exposure to troubled ‘peripheral’ bonds that would entail, and the lack of any agreement, or a mechanism to facilitate one, to take such measures.  They could try Forward Guidance in the style of ‘lower for longer’.  But the effects of this are likely to be muted.  A low yield curve can’t be lowered all that much.  And having muddied the waters somewhat with Forward Guidance ECB-style, [which was about explaining what would happen anyway to rates, not marking a change in the reaction function] it doesn’t seem likely to me that a switch to lower for longer forward guidance could generate all that much of a change in the outlook for ECB rates, and may simply generate confusion.

4.  It would be nice if there were a coordinated fiscal polity able to loosen to make up for the impotence of monetary policy.  But of course there isn’t!  There are fiscal units within the euro area that are either insolvent, or close to it.  And Germany, which isn’t, would be averse to a further fiscal stimulus.

5. It’s possible that saying ‘we don’t yet see the disaster that would befall us if we were too late to act’ is a way simply to talk down the risks of deflation, since there is nothing further the ECB could do, or for which a consensus on the Council could be mustered.  If that’s the case, then it would be justified.  There may be costs to pay, if people come to understand that you don’t explain the risks how you see them, but how you want markets to see them.  But now may not be the time to worry about the finer points of time-consistent communication.  If diminishing the risks of deflation helps anchor inflation expectations and make deflation less likely, why not try it.

6.  Steve Williamson points out correctly that there is no coherent theoretical account of the supposed mechanism whereby deflation leads to a vicious cycle of ever lower output and lower inflation.  But personally, if I was a policy maker, with a voice on the ECB Governing Council, the lack of such a model would not convince me to be relaxed about the recent slide in inflation.

Would negative nominal interest rates have stopped the Great Recession?

This was Miles Kimball’ contention, questioned by David Andolfatto recently.   An anecdote from the sticky price DSGE literature.  Suppose we take the view that the Great Recession was primarily a credit crunch.  As such, looser policy would have been a very weak instrument to offset it. In the New Keynesian framework modified to include credit frictions, a credit crunch causes actual output to fall, but also the natural rate of output consistent with flexible prices.  A monetary expansion afforded by negative nominal rates would boost aggregate demand, net worth, and lower spreads, counteracting the credit crunch, but at the expense of prohibitively high inflation.

In that same framework, where the microfoundations enable us to figure out what the best policy would be, it would be actually extremely costly to try to entirely offset the effect of the credit crunch on output.  By the same token, the same logic would suggest that conventional aggregate demand-boosting fiscal policy would not do the job either, since in this framework such policy works through the same output-gap inflation-boosting channel.

Even if you buy the basic set up of the model, (ie, sidestepping all the conversations about macro wars and microfoundations), how much weight you place on this prescription depends on weighing up a few things.

For starters, the result depends on the model encoding very high costs of inflation.  These come about because it’s assumed that demand for a firms’ goods, which has to be satisfied no matter what, is very sensitive to a relative price misalignment caused by not being able to adjust prices for higher inflation.  This causes firm production and hours worked to be volatile, and this volatility hurts the consumer-worker-firm-owners.

That said, the model excludes a couple of things that may understate the cost of deviations of inflation from target.  i) it doesn’t model money seriously, and doing so seems often to make inflation more costly.  ii) it assumes rational expectations and full commitment to the inflation target.  In reality, it would be fair to assume that there would be doubt about the authorities’ commitment to that target.  That would dispose a policy maker to be reluctant to let inflation wander a long way from target in pursuit of reversing a credit crunch, for fear of incurring large costs of disinflation down the road.

This isn’t to say that these models suggest that what the Fed did was wrong.  On the contrary, you could use them to explain why the Fed cut rates as aggressively as they did.  Note that inflation hasn’t wandered all that much from target throughout, in the US.

Much more effective at increasing output, and therefore much more desirable, in these models, would be policies that attack the credit crunch at source and substitute the reduced capacity for the private sector to intermediate and bear risk for the deeper pockets of the public sector:  capital injections into banks;  subsidies for private lending; asset purchases.  The Fed and HMT/BoE did just this.  Still we had a credit crunch and a Great Recession.  One inference is that the authorities did too little counter-credit-crunching of this sort.  Or it could indicate that in reality the credit policies have costs not encoded in the model.  Or of course the models may be off for any number of other reasons.

I would agree with Miles that it would be useful to have negative nominal rates to eliminate the risk of losing control of inflation on the downside, and being stuck in a liquidity trap.  In fact, we might even be on our way there now.  But that didn’t happen during the Great Recession period in question.  (Perhaps fortuitously).  And through the lens of these models it would not have been effective or desirable as a tool to counter it.

Media silence on the Nick Macpherson constitutional question

Last week the UK underwent a surprising constitutional change, and one that seems to have gone without much comment or analysis in UK media, as pointed out to me in an email from Jonathan Portes.  The Treasury’s top civil servant, Nick Macpherson, had a letter made public disclosing his advice that any future UK government not agree to a currency union with Scotland.  In doing this, the Government delegated to him the task of arriving at an objective view of the matter.  This was novel, since usually civil servants are there to serve, privately, politicians reserving for themselves the right to decide on the rights and wrongs of an issue, and all of us trusting to the discipline of electoral politics to produce an objective, and not a political decision.

However, the tactic seems to have passed as though it were perfectly normal, and expected.  This is a shame, because it is a potentially momentous constitutional change.  The Government for some reason announced itself as unable, untrusted to pronounce objectively on the matter of Scottish-RUK monetary affairs.  Why, is not clear.  Perhaps we are to draw the inference that all the parties are too likely to have their views about currency matters clouded by the desire to preserve the Union.   On what other matters should we now consider it unable or untrusted to set aside political preferences in favour of the interests of those who they serve?  We are of course not told.  At a stroke, the Government turned the Treasury from a machine to produce briefing for itself, into this plus an occasional (Government funded) think-tank, with murky governance and staffing arrangements.  Suddenly, all other departments are now latent murky think tanks waiting to spring into action, the terms on which they might do so just as opaque as in this case.

What happened was no doubt a product of the fact that we have an unwritten constitution.  As a consequence, there is little meta-legislation:  legislation on the machinations of government and democracy itself.  Unwritten constitutions have their advantages.   These might be summarised as:  if you write down the wrong one, you aren’t stuck with it.  However, their costs are, analogously, that if you start with the right unwritten constitution, you aren’t stuck with it either.  The deployment of the Treasury civil service as a supposed arbiter of objective economic facts came without any open political discussion.  Neither Parliament, nor the rest of us that elect members to it, had any say in the matter.

Had we been asked, we might have approved.   Or might not.  I would have approved in principle.  As I remarked in my last post, opening up the civil service in this way allows for more technocratic government where such government is appropriate, and opens up access to the analytical resources in government to the opposition.  I’ve met some of the analysts the Labour Party employ.  Talented and dedicated though they clearly are, they can’t hope to cover the whole gamut of policy so well as the civil service do for the incumbent.  However, making this change just now had its complications.  Rather than empowering the civil service, it could set it down the road of being discredited.  The next Nick Macpherson letter might irritate an Opposition, and force his departure when the Government changes.   Future Nick Macphersons might simply become viewed as equivalent to politically appointed advisors, and the change would have achieved nothing at all.

One of the safeguards of the status quo when we have an unwritten constitution is the media.  But here this safeguard doesn’t seem to have worked.   To judge from the lack of comment, one might think it was perfectly natural and expected that Nick Macpherson should have been asked to raise his head above the Treasury parapet.  Why the silence?  Is it because constitutional matters don’t make headlines?   That can’t be the reason, because of the clear focus on the Scottish referendum itself.  Perhaps, then, the lack of media commentary is because there are other constitutional priorities to discuss:  Scotland.  Is it that media controllers themselves are unionists and don’t want to spoil the Coalition’s masterstroke?  Seems unlikely.  Perhaps it’s just because civil service matters are normally not news worthy.  Civil servants make it into the papers if they are caught doing something improper, being paid too much, obstructing, being Sir Humphrey-like, or engaging in courageous Ponting-like leaks.  But the abstract noun of the civil service is a step too far towards the back pages.  Who knows.

However, if this constitutional change slips under the Op-Ed radar it will be a shame.  Personally, I agreed with every word of the Nick Macpherson letter, and thought the Treasury Paper which accompanied it was also first rate.  I also think that the SNP have been reckless and deceitful in the way they have conducted themselves on the matter of the currency question.   However, the rights and wrongs of this particular economic question don’t bear on the unsolicited, underhand way in which the civil service’s mission has been changed, nor the lack of framework governing future deployments.  And this constitutional skulduggery deserves high quality scrutiny from the main media outlets.  Not least because it begs the question:  what other changes might be in store?  And, ironically, it conjures the specter of arbitrary Westminster government, precisely what Scottish independence campaigners are hoping to escape.

[Update.  See this comment from the Institute for Government].

The UK constitution and Nick Macpherson’s letter on a Scottish Currency Union

Yesterday [13 Feb 2014] was a big moment in the  life of the UK constitution.  As part of an all party media campaign to communicate that no possible future UK government would agree to a currency union with a putative independent Scotland, contrary to the decidedly fishy assertions of Salmond and Sturgeon, the Coalition government released a letter of advice from the top Treasury civil servant, Nick Macpherson, reflecting on a Treasury paper on the issue, and himself advising that no such currency union should be entered into.

The letter is a tour de force.  There are many difficult issues bound up in whether this is a good idea or not, as all the ink spilled examining the euro area crisis proves, but this letter nails them in a few elegant and devastating paragraphs, making my own blogs on this look like Heath Robinson contraptions.

But the letter does raise some important constitutional issues, and I pounded away at that in a series of tweets last night.  The point has been made by others, so there is no special insight here.   But, to summarise.  It’s unusual for the civil service itself to disclose its advice in public.  What criteria should the Government use to decide?  How do the Government devise a framework to decide such a matter, to avoid making it look like what decided things on this occasion was simple political expediency (ie Nick agreed with George)?

If the criterion was that it was a very important issue (it certainly was an important issue) then on what other important issues can we expect public advice from Nick Macpherson, or his successors, or peers in other spheres of policy?  For example, as Alex Salmond himself quipped, what did Nick Macpherson think about the pros and cons of the UK exiting the EU?  Or what might he think of the prospects of arriving at a renegotiated settlement?  What does he think about the Bank of England’s new forward guidance framework, as a response to the Treasury request to consider it?  What did he think caused the financial crisis, and has enough been done to stop another?  Are we to expect senior civil servants to disclose their views about important military ventures?  For example, what did they think about UK involvement in Iraq or Afghanistan?  What does Nick Macpherson think about Help to Buy?  [The subject of a Faisal Islam tweet].  What did he think about the allocation of spending cuts in the Coalition austerity plan, for example, in the light of the controversy over the resources devoted to flood defence?  Does Nick Macpherson think enough is being done to tackle youth or long term unemployment?  Does he think, for example, that the automatic stabilisers are doing enough stabilising?  What did he advise on the creation of the Office for Budget Responsibility and what does he think of its performance subsequently?  Did Nick Macpherson agree with the Tory perspective that Labour’s fiscal policy was imprudently loose under Gordon Brown?  How does Nick Macpherson view the strategy the Treasury have used to deploy their shareholder influence over the Banks they control after the equity injections in the crisis?  What is his view on the trade-off between the need to cure senior financiers of greed and avarice, and the need to staff those banks with the best and brightest?  What did Nick Macpherson’s deputy think about the Scottish currency union?  Dave Ramsden is the Treasury’s senior point man on macroeconomics.  What does he think about it?  Can we see what he wrote too?  How was Nick Macpherson appointed?  Can we see something to allay worries that he might have been appointed because of a shared vision with the Coalition, (in which case his apparently independent advice on Scottish matters might be seen to be less independent)?

I am all for a new era for the civil service, in which their talents are exposed and exploited in this way [Nick’s letter, and the HMT paper, are of the highest quality].  It will help hold Governments to account;  help even out the inequality in analytical resources between an incumbent government and the opposition;  and, I think, focus policy decisions on technocratic rather than populist grounds.  But the framework itself within which what advice is exposed in this way needs to be made explicit.  And different areas of government policy treated even-handedly.  Otherwise, the civil service will fall into disrepute, and there will be larger pressure for those in the most senior or sensitive jobs to rotate, Washington-style, when a new Government comes into office.

Forward Guidance Mark 2.

Today was an exciting day for Bank of England junkies, in fact for anyone who gets off on central banking and monetary policy communication [cue to those of you who don’t to quit reading this].  The Monetary Policy Committee ‘updated’ its guidance, putting aside the unemployment rate threshold of 7 per cent that had so far been the point that would trigger at least considering an interest rate rise.  The reason being that unemployment fell much faster than was anticipated back in August 2013 when the threshold was set, yet for reasons that do not push the MPC to be even close to thinking about raising rates now.  Instead, in an extra-ordinary step towards monetary policy transparency, they have set out 18 forecast concepts that will help them and those monitoring them to figure out whether the economy is evolving as expected or not, and, if not, what is likely to be done about it.

The increase in transparency is to be applauded.  It rather knocked me for 6. [Cricket terminology].   As I tweeted today, many of us in the Bank wrote inches of memos explaining why this would be a good idea, [as have many writing in the public domain too], but to absolutely no effect.  Those members of the Executive Team or the Monetary Policy Committee to which we had access were either resolutely opposed – always seeing the wisdom in arguments extolling the costs of transparency – or thought it was a non-issue.  Now, with the change of Governor, all these objections are swept aside, and those previously immovable committees, staffed by people that substantially overlapped with those whom I worked for, are fully on board.  Well, good for them.  There must be a special clinical term to describe the emotion you feel when you push for something ardently, yet have absolutely no impact on anyone with any influence, and then it suddenly happens anyway without you being involved.   Whatever one might call this affliction, Chris Giles’ money supply blog served as a good antidote.  There he explains that the information the BoE are publishing about its latest forecast was just what they had refused to release following his Freedom of Information Request, and had been backed in doing so by HMT and the Information Commissioner.

Although today was largely a triumph, I don’t think we should forget the mess that gave birth to the new Forward Guidance.  I won’t go over all of this again [read these if you are interested].  But it does cast its shadow somewhat.  To recap very briefly.  Carney was determined to introduce Forward Guidance, which at that point meant a way of lowering interest rates out into the future, beyond the point at which the zero bound was binding, to loosen monetary conditions now.  He was overtaken by the heating up of the data between when he made that clear [before he took up post] and also by the objections of the majority of the MPC to injecting more monetary stimulus.  An agreement was needed that made it look like Carney had got his way, but yet was something that MPC colleagues who did not want more stimulus could agree to.  The agreement was problematic because there was much confusion following its launch over whether it was meant to induce more stimulus or not.   Carney’s August Press Conference translated as ‘this will kick-start the recovery’.  But behind it lay the majority view that monetary policy was about right (save the mild tightening in the yield curve, smaller than many previous movements that had not warranted comment).  And the launch was accompanied by some unquantifiable words about policy being ‘more effective’, and even some completely unfathomable words about it being intended to ‘explore the scope for… stimulus’.    FG was NOT meant to indicate lower rates than would normally be consistent with its reaction function [whatever that was, it never tells].  Though they had adopted the language of this lower for longer Zero Lower Bound Policy devised by Woodford, they meant to do something different, and much less drastic.

These mistakes cast their shadow because much of the media commentary is about the short-lived nature of forward guidance.  David Smith from the Sunday Times even puts the change in the same bracket as changes in the historical monetary regime.  When the reality is the objectives have not changed, just the procedures for changing the instrument used to achieve them.   If the MPC had simply said back in August that they wanted to be more open about their view of the economy’s future, and what they intended to do, they could have done that [they could have opted for today’s Inflation Report in August] without seeming to change their operating framework twice in 6 months.  All that we would remember is that transparency increased, and what a good thing it was.  There would be no talk of targets or thresholds or triggers or guideposts or knockouts.

Looking ahead, not all that could be done has been done on transparency.  Carney was asked in today’s press conference why the MPC did not simply publish its interest rate forecast.  His reply was that he didn’t like to do this because it mixed up the monetary policy reaction function with the state of the economy.  That is absolutely true.  But it’s also the reason why that forecast should be published.  The rest of the forecast variables published also mix up [translate ‘are affected by’] the reaction function and the state of the economy.  But the MPC are not suggesting they withdraw those numbers.   Publishing the forecast will help us understand how to disentangle the separate influence of the reaction function and the state of the economy on the forecasts, not hinder it.  While they are at it, the MPC should tell us how they quantify their monetary policy objectives [they surely do do this, don’t they, otherwise how could they possibly decide what they are going to do with their instrument?].  And they should tell us what their reaction function looks like;  provide the simple rule uses to construct the forecast, and some words explaining how good an approximation this is to how they think about what they do with the interest rate.  Further, they could release the code used to produce the forecast, which would underpin  the laudable wordy explanation of the scenarios in the forecast, and help outsiders understand how the MPC use their model tools and judgement to form their view.   So, a big step today, but much to be done.

Yet hang on.  In this same press conference today Mark Carney explained that ‘forward guidance was not forever’.   This threw me.  It harks back to the language that this is just a special policy framework to cope with the zero bound, which goes back to the confusion about whether or not this was meant to be a Woodford style ‘lower for longer’ policy, which is appropriate exactly and only at the zero bound, or not.  We are told not.  (Yet we suspect that’s exactly the policy Carney personally would have wanted.)  In which case, if forward guidance is therefore only about clarifying the path for future rates, why would we ever want to return to a situation where less information published could yield the same clarity about future rates?  That’s exactly what seems to be implied by saying the BoE will drop forward guidance.  Are we going to get to a state where the MPC is happy to let the yield curve wander around affecting monetary conditions as they tweak the short rate?  How so?