Bank of Canada Governors and Economic Performance: A Canada Day Celebration

Another Canada Day, another year of Confederation – we are now 148 years old– and another opportunity for taking a historical look at some economic aspects of Canada. For your Canada Day musings, I decided to take a look at economic indicators according to the tenure of Bank of Canada Governors since 1934 (the legislation was passed in 1934, the institution opened its doors in 1935) – when our venerable central Bank began its operations.

As you can learn at the Bank of Canada’s own website, the Bank of Canada is the nation’s central bank and its principal role is “to promote the economic and financial welfare of Canada” as defined in the Bank of Canada Act.  The bank’s major areas of responsibility are monetary policy, promoting a safe and sound financial system, issuing Canadian currency and serving as the fiscal agent for the government of Canada. Price stability has been an emphasis of the  Bank of Canada since 1991 with the setting of inflation control targets.

There have been nine governors since the creation of the Bank of Canada: Graham Towers (1934-1954), James Coyne (1955-1961), Louis Rasminsky (1961-1973), Gerald Bouey (1973-1987), John Crow (1987-1994), Gordon Thiessen (1994-2001), David Dodge (2001-2008), Mark Carney (2008-2013) and Stephen Poloz (2014-present). As a side note, I actually had the opportunity to meet two of these governors: John Crow and Gordon Thiessen.  They both came up to Lakehead to give talks  – indeed I have recollections of driving Gordon Thiessen around Thunder Bay in my van.

I’ve obtained data from Statistics Canada, Historical Statistics of Canada and Urquhart's national accounts data and for each governor’s tenure calculated annual averages for a number of macroeconomic indicators: real GDP/GNP growth (GDP after 1961, GNP before), inflation rate (CPI), unemployment rate and the Bank of Canada rate.  This is to see what economic conditions were like during each Governor’s term.  The comparisons for each indicator are made chronologically rather than as a ranking from highest to lowest to reflect that this is not a "performance" ranking.  As well, given that we are only one year and a bit  into the current Governor’s term, he will be omitted given the relatively few annual observations. Sorry Steve. However, if you are ever in Thunder Bay I will be happy to give you the scenic drive experience.

As a small open economy, Canada’s macro economic performance is largely determined by world economic conditions and particularly the US economy.  Nonetheless, the central bank must exercise a role in setting monetary policy to deal with economic conditions.  In keeping with metaphors and monetary policy, think of the Canadian economy as a small boat sailing in a rough sea (the Americans have a nicer and larger yacht, the British a cabin cruiser, etc…) with the Bank of Canada Governor at the tiller dealing with the waves.  As the accompanying figures show, there were some rough seas during the terms of these governors.

First, as Figure I shows, the tenure of Bank of Canada governors does appear to have become shorter with the longest terms early on - going to Towers, Bouey and Rasminsky - and the shortest terms to Coyne (recall The Coyne Affair involving then Prime Minister John Diefenbaker over the direction of monetary policy) and Carney (who as we know has gone to the Bank of England).

Figure 2 shows the average annual rate of real GNP/GDP growth during the terms of these governors.   As we all know, economic growth rate have generally fallen over time but they averaged the lowest during Carney’s term – with Crow’s term exhibiting the second lowest average growth rates (Crow is practically tied with Dodge here).  Economic growth was highest during the Rasminksy era, followed by Towers, Coyne and Thiessen.

 

Figure 3 shows the average annual rate of inflation as measured by the Consumer Price Index (CPI).  Here the Bouey era definitely sticks out with the highest average inflation rates.  Inflation was the lowest during the Coyne era.  Of course, Gerald Bouey’s term as governor coincided with the oil price shock and productivity slowdown known as the era of stagflation – high inflation and high unemployment.  However, as Figure 4 shows, unemployment rates jumped during the Bouey era but peaked during the Crow period.  While unemployment rates have declined since the 1980s, on average they were the lowest during the Rasminsky era.

Finally, Figure 5 shows the average annual Bank of Canada rate and these peaked during Bouey and were second highest under Crow.  Under Carney they are the lowest that they have ever been.

May you live in interesting times is of course the ancient curse and while all these Bank Governors faced economic challenges, some of them faced more interesting times than others. Average economic growth was highest during Rasminksy while inflation was lowest under Coyne.  Unemployment rates were highest under Crow and lowest during Rasminksy.  Interest rates were highest during Bouey.

While Graham Towers took office during the Great Depression, his tenure also coincided with World War Two, and the early postwar boom and recovery.   On average, his tenure was marked by low interest rates, low unemployment rates and pretty robust economic growth rates.  Mark Carney presided over the worst global downturn since the Great Depression and his tenure saw the lowest average annual real economic growth rates, relatively high average unemployment rates (still lower than Crow or Thiessen) and very low interest rates.

A trip through history with the Bank of Canada governors provides an interesting snapshot of Canada’s 20^th and early 21^st century macro economic history and performance.  Enjoy and have a great Canada Day!

Comments

[pfleischmoney]

Nice post. Lots of fun information.

[JP Koning]

Very interesting.

On a side note I do think that a true Canada Day celebration should include the 67 or so years that Canada operated with no central bank whatsoever, doing perfectly fine throughout that period. :)

[Erik Lund]

Not to sound like a monomaniac (but it's important, damn it!)

(Population)
1871 1941
Canada 3,689,000 11,507,000
United States 38,558,000 132,165,000

*source: Wikipedia, because I r researcher!

That's not "doing perfectly fine."