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The Globe and Mail

Top official gives rare peek into how Bank of Canada thinks

The Bank of Canada’s headquarters in Ottawa.

Tom Hanson/The Canadian Press

Rarely do the deputies on the Bank of Canada's governing council reveal much about how they view the world. They exist by convention; all the statutory authority to raise and lower interest rates rests with the governor. They do get out on the road occasionally, but they are restricted to the role of cover band on the college circuit – the stadium shows with all the lights and amplifiers go to the governor.

So it was noteworthy to see John Murray, a Princeton educated veteran of the Bank of Canada who was elevated to deputy in 2008, under the bright lights of New York on Tuesday. And it was a surprise to see Mr. Murray reveal a little something about his approach to policy.

He did so in a critique of the lesson that some draw from the research of Carmen Reinhart and Kenneth Rogoff on financial crises, which shows empirically that it takes longer to recover from recessions caused by blow-ups in the banking sector. "Reinhart and Rogoff" are oft-cited by critics of economic stimulus as evidence that only way out of a recession caused by debt is to pay off the debt.

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Mr. Murray's reading of Reinhart and Rogoff is different. He told the New York Association of Business Economics that he agrees that recoveries from financial crises are different from those from "normal" recessions. "Some allowance has to be made for this," he said, referring to the frustratingly slow rebound from the global downturn of 2009. But he opposes the point of view that the lesson of Reinhart-Rogoff that fighting a credit crisis is a futile endeavour.

"It would be a mistake, however, to assume that this experience represents some sort of immutable path toward which economies much necessarily gravitate following a crisis," Mr. Murray told the New York Association of Business Economics. "Such an attitude is too defeatist and fatalistic. Good policy can – and does – make a difference."

(A quick aside: The Globe's New York correspondent, Joanna Slater, wandered over to the speech on the assumption that Mr. Murray would be asked about the bombshell decision of his boss, Mark Carney, to leave Canada to run the Bank of England. No such questions came; the assembled economists were more interested in talking about policy challenges, and in particular, Canada's housing market. Ms. Slater chased down Mr. Murray, who politely declined to answer any queries.)

Mr. Murray's comment suggests he's an ideological cousin of Harvard University economist Lawrence Summers, who told me similar things about Reinhart and Rogoff in an interview a year ago.

Now, one might say it's hardly surprising that one of the leaders at a central bank that has left interest rates at ultra-low levels for more than two years has a Keynesian tilt.

But that's not the point. Because deputies say so little about their economic philosophies, all the public really knows is that the governor, Mr. Carney, has a Keynesian tilt. He surely absorbs the advice of his deputies, and he might even allow himself to be overruled, but policy decisions ultimately are his alone.

Canada's policy makers appear to take pride in the way they do things, but that satisfaction shouldn't be confused as the international norm. The Federal Reserve and the Bank of England publish minutes of their deliberations and members of their respective policy committees vote on decisions.

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The Bank of Canada prefers to keep its competing views, if they exist, hidden from view inside the central bank's headquarters on Wellington Street in Ottawa.

So it is enlightening to hear one of the deputy governors reveal just a little about his world view. It suggests at least one of the junior members of the governing council is unafraid to use policy to keep the economy from going off the rails. That's useful insight at a time when some are questioning the efficacy of monetary policy.

It's too bad Mr. Murray is handed a headlining gig so infrequently.

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