National Bank Financial says that the Bank of Canada has botched its reporting of the output gap, and needs to improve its disclosure.

“The output gap concept is one of the most important policy guides used by central banks in their decision process,” it NBF says in a research note, adding that the Bank of Canada is one of a few institutions that goes as far as to actually publish its estimate on a regular basis.

However, it notes that yesterday’s Monetary Policy Update included a small footnote indicating that estimates of potential GDP have been revised down. “Back in October, the BoC updated its estimate of potential GDP and judged the economy to be operating slightly above capacity. Three months later, despite GDP growing substantially below its potential estimate our central bank still contends that the amount of spare capacity has not grown. How could this be?” NBF asks.

“The answer is buried in small footnote (no bigger than a size 4 font) on page 3 of its January 18 MPR update saying that production capacity in recent years has been revised down slightly,” the firm points out.

“To be truly transparent, our central bank should have included in its MPR update a quantified measure of the impact of this revision on the output gap,” it concludes. “Given the extent of this revision, we are disturbed by the Bank’s communication misstep.”