When the Bank of England handed over the reins to Mark Carney, it presumably did so, at least in part, as a recognition of his success at his native Bank of Canada. But what is good for the former dominion may not be so great for the former imperial power, and certain people are not impressed.
Gov. Mark Carney ditched the explicit link between interest rates and unemployment that officials established in August and said that in future the Monetary Policy Committee will look at a whole range of labor market and other indicators (18 to be exact—see table 2 and 3 here) to assess whether their policy stance is appropriate. Mr. Carney signaled that rates in the U.K. will stay low and when they do rise they will do so only gradually.
According to Scotiabank, this approach has turned the BOE’s policy framework “into one that almost entirely mimics the Bank of Canada’s….”
“The BoC has long explained its inflation thinking in the context of an output gap and spare capacity framework–long before Carney became Governor in 2008.
“Carney is now Canadianizing the BoE by returning to this familiar framework on the other side of the pond,” say Messrs. Holt and Zigler….
“We know from our own experience in the Canadian market that estimating output gaps, forecasting them, and forecasting inflation by using output gaps are all fraught with risks that still leave plenty of scope for markets and private economists to challenge the framework,” the authors write.
How Mark Carney is ‘Canadianizing’ the BOE [WSJ MoneyBeat blog]