OTTAWA – The Bank of Canada is rethinking how it analyzing the economy, in part by putting less faith in computer models and more on anecdotal information and conversations with Canadians.
In a message from governor Stephen Poloz, the central bank said its confidence in its models was shaken somewhat last year by the economy’s underperformance and its inability to foresee events.
The message was contained in the bank’s annual report, released Friday.
“We are working hard to refine those models, but this experience is also leading us to put increased emphasis on anecdotal evidence — real conversations with real Canadians making real economic decisions,” Poloz says in a foreward.
“This approach includes surveys, both ours and those done by others, and numerous meetings with business associations” and roundtable discussions.
The bank has been criticized over the past few years for its overly optimistic view of how the economy would perform, especially under former governor Mark Carney.
Poloz notes that at the start of 2013, the central bank again began the year with a rather rosy view of how the economy would perform, with expectations of an export rebound spurring robust business investment.
“By summer, however, our optimism had dimmed,” Poloz says, noting that apart from U.S. weakness, non-commodity exports were softer than the bank’s models were indicating they should be, business investment was lagging and inflation was “inexplicable low.”
That required the bank to change its tightening bias, which had been telling markets the next move would be to raise interest rates, to a neutral stance, he said.
Looking forward, Poloz said the bank would establish “new principles and practices” to reformulate its role in promoting monetary policy and financial stability, but did not give specifics.