by John Crow. Etobicoke, Ontario: John Wiley & Sons Canada. 2002. Cloth, ISBN: 0470831804, $25.50. 256 pages.
This book, written for a large audience, gives a valuable presentation of the job of central banker. As former governor of the Bank of Canada, John Crow narrates his own experience and shows how difficult and subtle central banking can be. The readers may, however, disagree with the author's opinions regarding the appropriate role of a central bank and the justifications provided to support his opinions.
The first part deals with the domestic role of monetary policy and the progressive elaboration of a coherent central banking policy in Canada. This part starts with a historical account of the role of the Central Bank of Canada since its creation in 1934. Then, the author develops an interesting chapter about the proper role of a central bank for financial stability by looking at the Canadian experience regarding bank supervision, settlement management, systemic and liquidity crises, and the lender-of-last-resort operation. The Central Bank of Canada never has been directly involved in the supervision of banks, and John Crow is rightly unhappy with this situation: "The Bank and what it knows cannot be ignored in supervisory decisions regarding financial institutions" (p. 77).
The second part of the book analyzes the Canadian experience concerning foreign affairs. The most interesting part concerns exchange rate matters. Canada has a long tradition of a flexible exchange rate regime. The author shows the importance of communicating with financial market actors to limit disruptions in the exchange rate, but he also recognizes that the willingness to be transparent can lead "to confusion instead of clarity" (p. 120).
The last part of the book analyzes how monetary policy has changed since the 1970s. In addition, this part also provides a justification for inflation targeting. For the author, monetary policy has an essential role to play in the regulation of inflation. This leads him to talk about the monetarist period and how the targeting of M1 failed and discouraged any other attempts to target the money supply. The failure to target the monetary aggregate led to the willingness to target inflation directly. For the author, the introduction of inflation targets was "a resounding success" (p. 179) and they are useful because they provide credibility and transparency to monetary policy. However, the author recognizes that they are more...