National Bank of Canada’s (NBC) Warren Lovely, Stéfane Marion and Matthieu Arseneau argue that the Bank of Canada (BoC) should add an explicit unemployment rate forecast to its quarterly Monetary Policy Report. They stress that unemployment is central to understanding labour market slack, complements Consumer Price Index (CPI) and Gross Domestic Product (GDP) projections, and is widely forecast by peer central banks, international institutions and private-sector economists.

Call for BoC jobless rate projections

"It’s past time for the Bank of Canada to permanently incorporate the unemployment rate as part of the baseline economic forecast. There’s no reason to delay; the sooner the Bank’s economic forecast is enhanced the better."

"But if maximum sustainable employment is also to be retained as a complementary objective—as sensible today as it was in 2021—shouldn’t the Bank outline its thinking on the subject? After all, standard economic theory postulates that inflation and unemployment are inter-related."

"Adding just a single labour market indicator to the BoC’s economic forecast table would jibe with the Bank’s established mandate, acknowledging the connection between inflation and unemployment while simultaneously illustrating a focus on maximum sustainable employment. As for the metric best suited to the job, well there’s one obvious option: the unemployment rate."

"As it stands, the BoC is more of an outlier. Its economic outlook is hardly ‘best in class’ (in terms of completeness), with key stakeholders missing guidance on the labour market."

"From our perspective, the sooner the BoC shifts its focus from the ‘output gap’ to labour market slack the better. Again, to be clear, there needn’t be any change to the explicit monetary policy mandate to support or justify this overdue addition to the Bank’s economic outlook."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)