A group of eleven prominent Australian economists have penned an an open letter to Treasurer Jim Chalmers calling for the upcoming review of the Reserve Bank of Australia (RBA) to be chaired by an independent overseas expert:
“Full independence is crucial if the review is to make the most of this unique opportunity”.
“No institution can be expected to independently or credibly review itself. A foreign perspective would bring valuable external scrutiny to the process and enable a benchmarking of the RBA against its overseas counterparts”…
“It is critical that a review be conducted, but the devil is in the detail – poorly crafted terms of reference have the potential to undermine the efficacy of the review and therefore the future conduct of monetary policy”…
Some economists are concerned Dr Chalmers could be captured by Dr Lowe and Treasury secretary Steven Kennedy, who also sits on the RBA board, and be swayed to adopt a watered-down process where the outcome was pre-determined by those who didn’t favour a review in the first place.
Spot on. We need an independent outsider leading the review, rather than a captured insider.
Last week we presented a list of topics that MB would like to see included in the RBA review:
Monetary policy theory
- Does the efficient market hypothesis still hold currency for central banking?
- Why has inflation failed to materialise given monetarism says it should have done so long ago?
- How does debt fit with the picture in the long run? Is it time to abandon the Pitchford thesis?
- Does setting the cash rate and letting the market take care of the rest deliver national interest outcomes?
Monetary policy structure
- Is the separation of the RBA and APRA appropriate today?
- How can inflation goals be met in a future world of zero interest rates and currency devaluation?
- How should macroprudential and other unconventional tools complement the cash rate?
- Is an inflation target that excludes asset prices relevant any longer?
Monetary policy practice
- Should the RBA be free to comment on such issues as immigration and fiscal policy given they impact its job?
- Is the RBA being over-relied on to manage the economy, and should government fiscal policy take a more central role?
- Does a board of rent-seekers infecting decision-making make sense?
- Has the RBA culture become insular and withdrawn from new ideas?
Hopefully, the terms-of-reference will be broad enough to capture these issues.
