The third chapter of the review outlines their proposal for the new Monetary Policy Board (MPB) and how it would improve over the current Board of non-experts. Building off the first two chapters the Review argues that the lower economic expertise of the RBA's board has limited the depth of challenge and debate at the Reserve Bank Board.
It’s about the vibe
Noticeably the Review doesn’t argue that the Board should be filled with experts solely because they bring a unique font of knowledge to the process that will involve regularly overturning the Governor and the staff - despite this being argued in the press.
Instead they place an emphasis on that idea that having an expert body at the pinnacle of the decision making process would foster debate and engagement across the length of the policy process. Even if the MPC didn’t dissent from a single staff recommendation, they would improve policy by giving input into the early stages of the policy process, by demanding a higher standard of briefing materials and by suggesting new lines of analysis and research that should be conducted.
The Review (reasonably in my opinion) suggests that an expert MPC would not have had a policy discussion that lacked any mention of alternatives to the unconventional measures rolled out during the pandemic and alternatives to the approach of policy during the period of undershooting - both of which occurred under the status quo. This limited discussion also extended to the more recent periods when the Reserve Bank board did not receive nor request sufficiently detailed cost benefit analysis or financial risk assessments of the bond purchase program prior to approval. Amazingly senior staff members canvassed options to abandon the yield target in mid-2021, months before it collapsed, but the Reserve Bank board was not informed of the options discussed.
Interestingly the review flirted with the notion of an external member of the monetary policy board as chair! Some of the submissions to the RBA review canvass this as an option, as chairs are influential on discussions and agenda setting, and can have an outsized effect on shaping the discussion. Accordingly, a chair among the external members might help decentralise the power. Wisely the review ultimately shies away from this approach and sticks with keeping the Governor as the person best placed to chair the monetary policy board, and coordinate the communication of the board via regular press conferences.
Somewhat more controversially, the Treasury Secretary is also kept as a member of the Monetary Policy Board. Many current and former Reserve Bank board members clearly value the perspective of this external economist. Apparently, some did raise the concern about having the Treasury Secretary on the RBA board as creating either a real or perceived degree of interference with the RBA's independence. But the review states that based on its conversation with Australia's Treasurers, Treasury Secretaries and Governors, that direct political interference has not happened in recent decades (though I guess it did in less recent decades!?). An interesting nugget, if only for historical purposes.
A backup board
One under-reported recommendation is to create and engage with an expert advisory group on monetary policy (even more jobs for the economists!). Essentially, a more formalised approach to the RBA's existing academic and private sector economist panels, but with a broader remit to directly engage with the monetary policy board. In particular, the review recommends that the monetary policy board convene an expert advisory group consisting of at least 12 economists (!) from academia and the private sector.
Aside from the obvious benefits of more people discussing monetary policy more of the time (can you ever have too much of a good thing?), this has the added benefit of allowing people whose day jobs would otherwise conflict them from being on the monetary policy board to have input into the process, while also providing an opportunity to identify and train up economists who may later be suitable members of the monetary policy board.
The biannual nature of the meetings make it much more feasible for a wider pool of economists to be included on the expert panel. For example, an expert who has completed a term on the monetary policy board could retire to the expert panel such that their wisdom could still be incorporated in the policy process. Alternatively, a star Australian economist who has got a gig at a top overseas university might not be able to commit to flying back to Australia for regular policy meetings, but would likely be able to provide their insights on a less frequent basis. Unsurprisingly there are a lot of smart Aussies who work overseas, bringing them into the process in a way which their day job allows for is a good idea.
Finally, the review moves on to a range of other measures that seem like easy wins to me.
Transparency and accountability, holding a press conference after a free decision meeting, monetary policy board members giving at least one speech a year etc
More analytical depth for monetary policy strategy.
More detail on the forecasts being published
Publish Board papers after 5 years
Strengthened conflict of interest restrictions for MPB members.
All of which seem pretty sensible to me!