In a world subject to all kinds of shocks, and with financial markets increasingly more open and globalized, there are no guarantees that monetary policy will be successful at all times and under all circumstances. Still, it helps if those who are affected by policy decisions the financial markets and the general public understand what their central bank is doing, and why. Put another way, central bank actions will likely be more successful if they are better understood and more predictable. Financial markets will then likely respond more effectively, and indeed anticipate, monetary policy actions. And the general public will be better able to take monetary policy into account when making plans for the future.
Transparency actually leads to better policy outcomes.
In Canada, the move towards greater openness, transparency, and accountability in monetary policy received a big boost with the adoption of the inflation targets in 1991. The targets established a clear objective for monetary policy. And they set a precise yardstick for measuring the Bank of Canada's success in meeting that objective. The Bank's explicit inflation target and our commitment to achieving it, have provided strong incentives for us to be as candid as possible about the external and domestic developments that are likely to influence inflation and the ability of monetary policy to respond to them. Under the stewardship of my predecessor, Governor Thiessen, who placed particular emphasis on encouraging greater openness and more effective two-way communications, the Bank made important strides in this area.