The choice of Stephen Poloz as the next head of the Bank of Canada came as a surprise to many. To an alumnus of the institution, such as myself, it was much less of a surprise.
When I was a young researcher at the bank, Steve was chief of the research department. I have always believed he would one day take on the mantle of governor. So it was surprising to many of us when he announced his departure from the bank in the 1990s; most of us assumed he was on the fast track to eventually become governor.
Questions abounded about the gap left by his departure. Some were light-hearted: Who would dust out the Golden Boot trophy for the annual soccer game so the winners could drink champagne from it? Who was going to try to slip puns such as “a scaling back in the fish industry” into the Monetary Policy Report? Who would fix the overhead projector when in conked out in meetings? Steve knew his way around more than a monetary policy tool box.
More seriously, we asked, how would the gap in monetary policy research be filled and how would advice given to the Governing Council be changed? Much because of the legacy he helped establish, the bank thrived. Steve’s era of research helped set the stage for Governor David Dodge to focus presciently on global imbalances and financial stability, and Governor Mark Carney to cut the Gordian knot, committing to leave rates at the zero bound, at the apex of the 2008 financial crisis.
Steve exemplified the bank’s tradition of managing a staff while producing important monetary policy research, authoring nine widely cited working papers and technical reports, in addition to being lead author on the Monthly Policy Report, even as he moved up the ranks.
His research never strayed far from the bank’s mandates; publications ranged from explicit topics such as “The Transmission of Monetary Policy” (co-authored with others) to “The Causes of Unemployment in Canada.” The latter contains conclusions and observations still relevant to today’s discussions on labour markets in Canada and in other countries.
Even after the leaving the bank, Steve remained an important voice in policy and academic circles on issues involving monetary policy. A 2006 paper he wrote while at the Export Development Corp. titled “Financial Stability: A worthy goal, but how feasible?” was particularly insightful – and may have implications for the future direction of Canadian monetary policy. In it, he suggests that volatility in financial markets might be due in part to “successful inflation targeting,” and that “central banks might better focus on making financial systems more resilient than on trying to develop sophisticated policies aimed at reducing financial volatility.”
Under his leadership the bank’s monetary policy objectives will continue to evolve, and might even shift. Mr. Carney has often noted the need for a flexible inflation-targeting regime, under which situations might arise when it is necessary to delay or speed the pace at which inflation returns to the long-run target.
But could inflation-targeting policies be a cause of financial market volatility? A discussion of this possibility has been absent from the bank’s research docket and communications. Not for much longer, perhaps.