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Julian D. A. Wiseman
Abstract: The BoE is proposing to publish the minutes with the announcement, imposing an impossibly high secret-keeping burden, and giving itself difficulties with late-breaking news. The BoE wants to publish the transcripts of debates: please answer Hansen, McMahon, and Prat. But publishing more of its history is an excellent plan: please, more and more and more and not less.
Publication history: only at www.jdawiseman.com/papers/finmkts/20141211_BoE_secrecy.html. Usual disclaimer and copyright terms apply.
Contents: • Keeping secrets; • Publication of transcript; • Publishing its history; • Afterword.
From page 8 of Transparency and Accountability at the Bank of England, 11th December 2014:
The first part of the MPC’s meeting, currently held the day before the announcement … will instead be conducted around one week beforehand, shortly after the pre-MPC briefing. The second part of the MPC’s meeting, currently held on the morning of the announcement, will be divided in two: the main policy discussion will be conducted three days beforehand, on the Monday; the policy vote will take place on the Wednesday, the eve of the announcement. These two latter stages of the meeting will both be transcribed. These changes will provide sufficient time to write the minutes of the meeting and (in relevant months) to finalise the Inflation Report, both of which will be published alongside the policy announcement.
The plan is to maximise transparency by releasing minutes with the decision. It is a well-intentioned plan, but the BoE seems not to have seen the danger.
In February 2011 it was rumoured that Andrew Sentance, then an external member of the MPC, “had told guests at a dinner … that the minutes would be more interesting than usual”. Apparently FX dealers interpreted this as meaning that there would be three votes for a rate rise. (For that story see The BoE Should Announce The Votes With The Decision, 18th February 2011.)
This is what happens with secrets. If I know a secret that you want to know, everything I say will be interpreted as revealing something about that secret. And sometimes, hopefully rarely but more often than never, a mistake will be made. And even if a mistake is never made—rubbish assumption, but pretend—dealers will interpret careful anodyne words as giving clues about the secret. It can’t be avoided: the Governor speaks at international events; Treasury politicians speak in Parliament; individual MPC members speak at academic conferences. Indeed, the Bank is encouraging transparency: people will speak. And what they say will be deemed to give clues about the decision that has been discussed and, with high probability, is known to the speaker.
Even if the clues that are ‘heard’ do not actually exist, markets mis-trading in this manner is not a public good.
So the BoE’s new plan is to keep parts of the discussion secret for a week, and to keep the almost-decision itself secret for several days. Non-central banks guilty of wilful optimism get spoken to by the PRA. This is the Bank of England being guilty of wilful optimism.
Further, what about news and events and market developments that happen after Monday’s discussion but before Wednesday’s vote? Ignored? That isn’t credible. On Wednesday briefly discussed, but not appearing in the minutes? Would that be better? On Wednesday briefly discussed, thereby causing the minutes to be delayed? That would be the most honest, but would it be better?
So minutes-with-announcement is a dog’s breakfast. Please don’t.
The correct sequence is as follows. Immediately after the discussion, take the decision. Immediately, announce that decision, and the votes. And include some sentences of reasoning. Most of that reasoning should belong to the MPC as a whole, but some can come from a few named individuals. Yes, this is how the FOMC now does it. Please copy the FOMC.
From page 2 of Transparency and Accountability at the Bank of England:
As recommended by Governor Warsh, the MPC will publish, with an appropriate delay, written transcripts of those meetings at which policy is decided. The MPC believes that an 8-year delay for transcript publication would strike the right balance between preserving what Governor Warsh describes as a “safe space” for Committee deliberation and bolstering the transparency and accountability of its policy decisions. The choice of this delay falls within Governor Warsh’s recommended time-frame and, as he explains, balances the length of business and financial cycles with increased accountability, while also ensuring that MPC members are not constrained in their ability to make sound policy decisions. Such a deferral period will, he notes, put the Bank in high standing among developed economy central banks. The Bank will also publish, alongside those written transcripts, key staff inputs that informed the policy decision.
Very fashionably transparent, and consistent with requests of the Treasury Select Committee.
There is a fascinating paper on this subject: Transparency and Deliberation within the FOMC: a Computational Linguistics Approach, Hansen, McMahon, and Prat, which in July 2014 was reviewed in The Economist. From that review:
The paper uses a natural experiment involving meetings of the …FOMC…. In 1993 the Fed, pressed by Congress to make its proceedings less opaque, not only promised to publish transcripts of the FOMC’s future meetings, but also opened up its archive. Transcripts of earlier meetings had never been intended for public release; members of the FOMC were not even aware that such records had been retained.
The transcripts before 1993 display an FOMC unburdened by the knowledge that their deliberations would one day be on the record. Conversely, from 1993 all participants knew that their input would eventually be made public. The new study compares the two periods to see what impact the new transparency had.
… Newer members in particular did behave differently, talking more about economic issues and citing more data when doing so—suggesting that the increased transparency had induced them to mug up on their briefing notes. But the publication of transcripts also seemed to inhibit policy discussions. Less experienced members asked fewer questions, made fewer statements and were more likely to follow the chairman’s lead. That, the authors assume, is because they were unsure of themselves, and did not want to advocate policies that might later backfire.
From that paper:
After transparency, more inexperienced members … disengage more with debate …: they are less likely to make interjections, ask less questions, and stick to a narrow range of topics. They also speak more like Chairman Greenspan.
If there is anything the Bank of England doesn’t need, it is another constraint on internal dissent. This decision is fashionable but terrible. The Treasury Committee is deeply wrong on this matter, and should not be heeded.
A better policy would work as follows. At the start of every meeting, the Governor would undertake personally to supervise the destruction of the tapes, no later than six weeks after the meeting. And the Governor could then say “You, people at this meeting, may speak and argue freely. Erroneous dissent will be argued here, but will not haunt your career.”
This is not a fashionable opinion.
From page 4 of Transparency and Accountability at the Bank of England:
Until April 2013, Court did not publish minutes of its meetings. Instead, the minutes were transferred to the Bank’s Archive, and the files opened to the public after a delay of 100 years. Since April 2013…, the Bank has published minutes of its Court meetings six weeks after the meeting to which they relate…. But the minutes from 1914 to March 2013 have remained unpublished
For most of its archived material, the Bank has for some time voluntarily followed the approach of central government, adopting a 30-year rule for release of historical records. The Bank now plans to follow the practice of the National Archives and move to a 20-year rule by opening two years of records each year until 2022. The minutes of Court meetings have previously been treated as the exception to this. Court has, however, decided that, in line with the Bank’s commitment to greater openness, the release of the minutes of its historical meetings will be brought into line with the standard for other material in the Bank’s Archive. As such, the minutes of its meetings from 1914 to 1987 will be released during the course of 2015.
This is excellent. Of course the minutes of Court should be released.
But the BoE should go further. Don’t just make the minutes available to passing researchers. Scan them, OCR or type them into a machine-readable copy-pasteable format, and upload them. Across the globe there are historians who might be interested in these documents, some directly, some because they speak tangentially about another subject of research. Make them available remotely and make them searchable. Please upload them.
Indeed, the BoE should go further. Also scan and OCR/re-type and upload all Governor’s speeches, since the beginning of time. And all policy papers and other internal documents that might be of interest. Overend Gurney went bust in 1866: upload all the documents, internal and external, that might have any bearing on this. Ditto other market crashes and turbulence; ditto gold standard; ditto everything.
Indeed, the BoE should go even further. On 1st April 2012 the BoE removed from its website all MPC minutes prior to 2008. Err, why? Why this pointless vandalisation of the BoE’s own website? (Soon after it happened I spoke to some people at the Bank, perhaps more bluntly than was welcomed.) And now, in December 2014, the website seems to have only ≥2011 MPC minutes, and only ≥2000 press releases. Please put it all back.
So I thoroughly approve of publishing more of the BoE’s history, and encourage more and more and more. And discourage less.
— Julian D. A. Wiseman
London, 11th December 2014
12th December 2014: A message has come that the BoE has kept old MPC minutes on its website, in the archive section at www.bankofengland.co.uk/archive/Pages/digitalcontent/historicpubs/mpcminutes.aspx. Apologies for having missed their re-appearance.
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