NEW YORK (MaceNews) – The Bank of Canada continues to pursue a risk management approach to policy-making as it faces multiple challenges and uncertainties stemming from the Covid-19 pandemic, retiring Governor Stephen Poloz said Monday.
The risk management approach to implementing the bank’s inflation mandate means the bank considers multiple economic models and incorporates soft data such as anecdotal survey results in its deliberations, Poloz said in remarks prepared for delivery to the University of Alberta.
“The bank has come a long way in adopting a risk management approach to our inflation-targeting framework,” he said.
“But it is clear that the events of this year will be a massive test for everyone’s policy-making ability. We are entering unknowable times, and we will have to be nimble and innovative. The questions are many and daunting. “
Poloz said policy-makers must ensure their communications help the public understand the bank’s actions and its rationale. “We need to communicate our assessment of the events and issues that are influencing our decisions, while being honest about the high level of uncertainty inherent in policy making,” he said.
When the pandemic hit, the bank acted effectively to bolster financial system, he said. “It appears that the approach has worked so far. Financial markets are performing well,” he said.
Policy-makers will be obliged to confront “unparallelled uncertainty” as the economy seeks to reopen from the shutdowns needed to contain the pandemic, Poloz said.
“They will have to deal with all the unknowns surrounding the restart of shuttered sectors, the reconstruction of broken value chains, the unwinding of emergency measures and the unpredictable behavior of consumers and business leaders,” he said.
“Some of the financial vulnerabilities already present in the economy will have grown worse, and other sources of vulnerability are likely to emerge. We are truly entering unknowable times.”