Do boards of central banks understand monetary policy?

"Decision makers seem hostile to a consideration of evidence or research".

This post relates to the Reserve Bank of Australia board, which has been lashed by a former researcher for failing to understand monetary policy in an email made public. 

Many of the points raised could be levied at other central banks too. As central banks continue to claim immunity from scrutiny under a misguided cloak of a widely misunderstood principle of 'central bank independence', which applies to some but not each and every aspect of a central bank's remit, we should expect to see more criticism of them particularly:

• their ability to read the economic data to formulate effective policy in the current #covid pandemic climate;
• their ability to navigate a wider policy debate over decentralised #digitalcurrencies;
• where a central bank has both a central bank and financial regulation mandate,
• mistakenly read tenets of independence of central banking to that of financial
• regulation; and
• failure to issue clear, simple and concise information. (see link below to a post by a former central bank deputy governor on his 'lonesome battle against the incantations')

On the 2nd last point, it is welcome reading that in the case of the Australian central bank the damning email was released by the bank following a freedom of information request. This is not something one could expect from many European central banks.

The email also criticised the central bank for:

• its reluctance to be open and honest, 
• making claims contradicted by evidence including about the effectiveness of policy, likelihood of dropping interest rates to zero and the effect of #negativeinterestrates, 
• a Board that does not understand monetary policy or statistical research,
• opposing views are not taken into account, 
• decision makers seem hostile to a consideration of evidence or research, and
• an environment makes the organisation dysfunctional. 

Here's a link to the Australia article on Reserve Bank  

Here's the link to Stefan Gerlach's (former Central Bank of Ireland deputy governor) post on his 'lonesome battle against the incantations' 

Both are worth a read.  And when you do, think about any relevance to your central bank and although there is always two sides to every story, in the absence of comment by the Australian central bank, the reports of Dr Peter Tulip's comments make for compelling reading and thinking. 

​This article is reference in my post on Linkedin.