– economists Marc-André Gosselin and Temel Taskin tracked references to supply and demand in transcripts of earnings calls, and gauged the sentiment expressed in those discussions.
The researchers found that, during the COVID-19 pandemic, this information outperformed traditional indicators in predicting changes in the output gap – the discrepancy between demand in the economy and available supplies. Measuring the output gap is critical to the Bank of Canada’s assessment of underlying inflationary pressures, and is, thus, a vital guide to interest-rate policy.
The Bank of Canada is always careful to point out that the views of its researchers do not amount to official policy positions for the bank. Nevertheless, the focus of its research at any given time can provide a window into what the bank’s decision makers have on their minds. And lately, the output from the research department has indicated a great deal of interest in corporate information – and more specifically, what it might say about inflation and the transmission of rate policy.
The bank has for years leaned on information that it gleans from its quarterly Business Outlook Survey, as well as private consultations with business leaders, to understand corporate sentiment and expectations – and to incorporate that information into its forecasts and its monetary-policy position.