BoC External Review

The Globe and Mail reported on an external review of the Bank of Canada’s research quality; this report has been published by the Bank on its website. Both the report itself and the BoC response are available.

The Globe and Mail’s emphasis on “micromanagement” is not borne out by the actual report. The term is used in the section “Strategic Principles for Promoting Research”:

Although the operational work of the Bank must be planned and directed by policymakers and managers (with an essential role for strategic plans and short-term deadlines), longer-term research should generally be initiated and self-directed by individual economists. This approach to research is essential for fostering higher-quality research output, because substantial creativity and flexibility are needed to ensure that the focus and direction of the research project can be adjusted in response to preliminary findings, unanticipated obstacles, new methodological developments, and results from other academic and central bank researchers working on related topics. Furthermore, by giving researchers sufficient freedom to pursue longer-term research projects, the Bank will encourage and will attract and retain new economists with strong analytical abilities in both research and policy analysis. We see no alternative to this approach for achieving the Bank’s “second-to-none” objective.

While avoiding “micro-management” of longer-term research, the senior staff does have a crucial role in promoting high-quality research that informs the Bank’s short-term analysis and policy decisions. The Bank should establish and reinforce the incentive system—in terms of financial rewards and promotion opportunities—for conducting high-quality research on policy-relevant issues. In addition, senior staff should identify broad topics and policy questions on which the state of knowledge is currently insufficient but could be significantly expanded by long-term research that stretches over a few years, which is the relevant horizon over which the research is likely to be successful in addressing such issues. Finally, the senior staff should incorporate these considerations in initiating and managing medium-term projects; as noted above, such projects are not directly aimed at producing publishable research output, but in many cases, the economists working on a given medium-term project will end up pursuing new longer-term research that contributes to the broader state of knowledge on that topic.

… which isn’t anything more than a statement of good management practice, particularly in an intellectual environment.
Some justification for the label is found in the “Summary of Recommendations”:

Other initiatives call for increasing the efficiency with which existing resources are deployed. Principal among this set of recommendations is that researchers should be given more freedom to select their own topics and manage their own research agendas. Today, research is managed to an important degree to meet the objectives set out in the medium-term plan for policy relevant research. This policy not only interferes with the staff’s ability to produce publishable research, but is also not the best approach for generating analysis to inform policy decisions.

Thus, the Globe’s statement that researchers are stifled by micromanagement is clearly unsupported by the actual report. Currently, research at the Bank is guided with a focus on policy concerns; to achieve the Bank’s objective of being “second to none” in research, they will have to:

  • Hire top people
  • Pay them well
  • Tell them to think smart thoughts and write them down

I see no indictment of Bank management in the actual report. To the extent that there is direct criticism of the Bank, it is regarding pay scales:

The Committee perceived a substantial inconsistency between the “second-to-none” objective and the Bank’s current pay structure, which clearly hampers the Bank’s ability to recruit and retain highly-talented economists.

In recent years, the Bank’s salary for entry-level economists has been aligned with the median pay for second-tier Canadian universities—a level which is substantially below that of top-tier Canadian universities and even further below that of comparable positions at U.S. universities or international institutions such as the IMF. This salary structure seems like a clear recipe for mediocrity rather than excellence. Indeed, in its interviews with some recently-hired staff economists, the Committee heard several comments like “I didn’t receive any other job offers, so I accepted the position at the Bank of Canada.”

I, for one, feel that the BoC should be a centre for excellence in the economic field, perhaps in the same manner as the Perimeter Institute is for Physics, with cross-appointments to the purely academic community.

One Response to “BoC External Review”

  1. prefhound says:

    Actually, the two go hand in hand. If you hire median 2nd tier staff, you will almost certainly have to micro-manage them!

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