Opinion: In June, the Reserve Bank of New Zealand told us something surprising. It said it had never banned experts in monetary policy from serving as external members of the Monetary Policy Committee. It was all just a big misunderstanding.
The Monetary Policy Committee, which sets the Official Cash Rate, is where one should expect a lot of expertise in monetary policy and macroeconomics. There are few higher-stakes decisions.
For years, everyone understood that the Reserve Bank had, since 2018, banned academics with ongoing research interests in macro and monetary economics from serving on the committee.
Treasury summarised the committee appointment criteria in a report to the minister in January 2019; that document’s release sparked controversy about the Reserve Bank’s ban on expertise:
“As you previously agreed with the Board, a strict approach has been taken regarding conflicts of interest. This has included excluding from consideration any individuals who are engaged in, or likely to engage in future, in active research on monetary policy or macroeconomics. In future appointments to the MPC, looser criteria could be adopted that would allow for a broader field of potential nominees from the Board, if desired.”
In June this year, the bank told us it welcomed applications for the committee from those with expertise in monetary policy and macroeconomics.
But that, apparently, wasn’t a laudable change of heart. Instead, the bank insisted there had never been a ban in the first place.
It was, as I suggested, surprising.
The Reserve Bank had taken sharp public critique for what everyone had understood to be a ban on expert academics serving on the committee. Over that period, the Governor of the Reserve Bank had earned a reputation for sharply admonishing critics he believed were wrong.
But the bank had never corrected any of its critics about the ban on expertise.
Instead, a bank spokesperson was quoted, when the ban was first publicised, as saying that the board and minister wanted “not even a hint of a whiff of any conflict of interest with appointees”.
Allowing macroeconomic and monetary experts to serve on the committee is welcome. But how did the bank believe there had never really been a ban?
I was one of those who had been severely led astray. And I wanted to know how that had happened. Former Reserve Bank economist Michael Reddell found himself in a similar situation; we both put in OIA requests, and Reddell posted the full response we each received last week.
Since then, I’ve been trying to piece together what would have to be the case for all of the OIA materials and public statements to be consistent with each other.
First, it must be the case that Reserve Bank Governor Adrian Orr forgot about a relevant 2018 board meeting, and related email discussion. The board had decided that “an academic researcher active in the Bank’s areas would likely be conflicted”.
Second, Reserve Bank officials relied on the Treasury’s summary as having been accurate.
Why is this?
A series of email chains have officials taking the Treasury summary as an accurate record. The governor inquires whether there is any statutory basis for banning experts from being on the committee. He notes the “noise” about “appointment and assessment processes ruling out current academics in the monetary/economic policy field”.
Everyone involved took the ban as given. If the governor remembered the 2018 discussions, he would not have asked about the basis for the ban when the bank was under pressure about it. Instead he could have noted that though academics with a research interest in macroeconomics and monetary policy were likely to be considered conflicted, not all would be.
These claims are entirely believable. But it does seem a fine distinction. When is a presumption that academic experts would likely be conflicted not a ban?
Third, Orr must not have called up his chair to discuss whether academic experts in monetary policy might be allowed to serve on the committee. Further, he must not have mentioned the “noise” about the Monetary Policy Committee appointment processes, or the ban on experts at any board meeting. Alternatively, everyone on the board must have forgotten the 2018 discussions.
Reserve Bank Chair Neil Quigley had signed off on the notes from the 2018 board meeting that discussed conflicts and appointments to the committee.
He told Treasury, in March 2023, that Treasury had misinterpreted things in its 2019 summary, which he had not previously noticed.
Treasury’s 2023 meeting summary with Quigley said, “It sounds like there was an unfortunate mis-communication where comments about one particular candidate were interpreted to apply to candidates more generally in a way that was not intended.”
Had the Reserve Bank governor asked the chair about conflicts policy for appointments to the Monetary Policy Committee or mentioned the sharp critiques that the bank had experienced for having banned experts from serving, things would have come to a head much earlier. The board and chair would have compared the Treasury’s summary with their own policy, which preserved a faint hope that an academic expert may not have been considered conflicted. And they would have informed everyone about the difference.
Instead, those inside and outside the bank understood the ban to be in place.
Finally, the chair of the Reserve Bank, and the board, must have remained oblivious to numerous public critiques in major newspapers of the Reserve Bank’s ban until the 2023 appointment process was underway, at which point the chair sought to correct Treasury’s interpretation.
Otherwise, we might expect that a member of the board would have noted the issue, which has implications for Reserve Bank credibility, at a board meeting. And that misperceptions, once noticed, would have been corrected.
It could all be consistent with a very deep fog-of-war in which everyone other than the Reserve Bank chair forgot what was agreed in 2018, and the chair was oblivious to everyone else being wrong.
It seems implausible that the governor did not raise the issue with the chair or the board and that neither the chair nor the board noticed the critiques published widely. Even former Reserve Bank Chief Economist John McDermott publicly described the ban as “baffling”.
If the board of the bank overlooked a critique by its former chief economist, that would be its own separate failing.
Or it could just be a bit of revisionist history to make the bank seem a bit less absurd – and blocking monetary policy experts from serving on the Monetary Policy Committee is deeply absurd.
In any case, I can take comfort that I was far from the only one who was allegedly misled here.
At least the bank will not be blackballing experts in future appointments to the Monetary Policy Committee.