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Dear Delegate,
Maximising the Value of Economic
Analysis for Central Banks
Central bank economists face
ever-increasing demands for their analysis from the public,
markets and policymakers. However, their focus, increasingly,
is on supporting the central bank's core functions of assuring
price stability and financial stability. Economic analysis forms
the backbone of modern central bank policymaking and plays a
crucial role in informing markets and the public, and in shaping
expectations. Producing timely and understandable analysis of
the national and international economic variables - and their
interaction - is vital to the credibility and independence of
the central bank. The ability to understand and model the behaviour
of financial markets and their participants enables the central
bank also to identify the risks that could impact on the economy,
rank them in order of severity and probability, and advise policymakers
on appropriate policy measures to prevent or mitigate the risks.
To meet these demands senior
managers need to identify relevant topics, rank them in order
of priority and develop a coherent programme of research. Managers
also need to plan and organise adequate financial and human
resources to deliver results to the satisfaction of policymaking
committees and boards.
This training course/seminar provides
an opportunity to review and assess the whole range of economic
input to policymaking and publications in a
central bank, the various ways in which central banks organise
this function at present and the conclusions that can be drawn
for the optimal ways of organising it in future, given the specific
circumstances of individual institutions. This assessment will
cover not only the central roles in the process of monetary-policy
making and assuring financial stability, but also the efficient
conduct of market operations, including reserve management,
and risk management throughout the institution. In all such
areas, the input of economists and economic modelling is indispensable.
In designing this
course, Central Banking is building on its well-established
annual training course/seminar series held annually at Cambridge.
Over the last five years, the series have attracted over 550
central bankers and financial regulators from over 95 different
countries. This is the second series of training courses/seminars
to be held in the regal setting of Cumberland Lodge, located
in the heart of the famously picturesque Windsor Great Park.
The course reflects
the independent standing of the course organisers, which allows
and positively encourages the free and open discussion of important
and sensitive issues. At the same time, the limited size of
the groups allows each individual to contribute fully to discussions
and derive maximum benefit from participation. Also, the residential
nature of the course provides ample opportunity for informal
discussion outside the scheduled sessions.
We look forward to
welcoming you to Windsor.
Yours sincerely,
William Clarke CBE PhD
Chairman, Central
Banking Publications
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Sunday 18th April
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Monday 19th April
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REDEFINING THE ROLE,
SCOPE AND FUNCTIONS OF ECONOMIC ANALYSIS IN A CENTRAL
BANK
Chairman:William Clarke
CBE PhD, Central Banking Publications
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Challenges
facing the central bank's economic advisory function
David
Mayes
Bank
of Finland
In this important
opening session, the group will discuss the changing
expectations of boards and policymakers of what the
economics and research department(s) are expected
to deliver, and it will review how different central
banks are at present responding to these challenges.
The aim is to lay the groundwork for later sessions
that will help delegates to formulate focused programmes,
tailored to their particular requirements, to achieve
these goals. To define these requirements more precisely,
the group will survey the roles of economists in a
wide range of functions, including centrally monetary
policy and market operations, but also embracing financial
stability, reserve and liability management and risk
management. The group will also consider another critical,
yet also frequently neglected, subject: information.
The foundation of a good economic service in a central
bank is for it to establish and maintain an adequate
information base. Before getting into forecasts and
models, what is needed first is to determine what
data the institution needs to have, how it is to be
collected and updated, what relations are with other
key official agencies such as the statistics office,
how quality control is to be maintained, and the resourcing
and organisation of this function.
The organisation
and structure of the economics/research department(s)
Ana
Cristina Leal
Deputy Head of
Economic Research, Bank of Portugal
In this
session, delegates will discuss the place of the economics
department within the bank's organisation, its mission
or mandate and its resources. The department's most
important resource is its expert staff. Standards
must be as high as possible, given the financial and
human resource constraints of the country's given
environment. As well as generating reliable data,
central banks are expected to produce intellectual
material on a par with top academic institutions.
Central banks face competition from private, public
and official sectors in attracting and retaining economists.
This session discusses the effective management and
allocation of human resources in order to structure
programmes of research to achieve goals set by policymakers
as well as retain and motivate staff. The importance
of cooperation between economists belonging to different
departments of the bank and the organisation of interdepartmental
working groups will also be considered.
Research vs economics
Speaker
to be confirmed
The final
subject of the day will task the group to discuss
the difficult question of the relationship between
research and the provision of direct economic advice
to policymakers. At present, practices among central
banks vary from labelling the whole of economics 'research'
to labelling it entirely 'economics' but nevertheless
there is an important distinction that is difficult
but essential to manage. There can be a cultural problem
for senior management who are not necessarily trained
economists to understand why the sorts of simplification
that economists make are necessary. Where resources
of highly trained economists are scarce, as in many
emerging markets, the rationale for the central bank
to devote such scarce resources to 'research' as distinct
from 'direct input into policymaking' must be explicitly
considered. Balancing fundamental, strategic and applied
research and organisation is crucial. Workshop sessions
In a final session, participants will split into working
groups to focus on specific subjects.
Work Session
In a final session,
participants will split into working groups to focus
on specific subjects.
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Tuesday 20th April
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SUPPORTING
THE WORK OF MONETARY-POLICY MAKERS AND POLICY COMMITTEES
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Presenting to policymakers
Geoffrey
Wood
Cass
Business School
Presentation
of research findings at policymaking meetings and
ensuring that policymakers understand the findings'
qualifications and assumptions is one of the most
challenging aspects of economic research in a central
bank. This necessitates compressing and simplifying
of information for non-specialists and providing continuity
in the presentations. This session will discuss the
development of research programmes in central banks
in a format that is based around regular policymaking
meetings, and effective and innovative methods of
presenting the results.
Modelling the
national economy
Monde
Mnyande
Head
of Research Department, South African Reserve Bank
In order to
test, evaluate and propose policies a central bank
needs a model of the domestic economy that is comprehensive
but adaptable. What are the key building blocks for
a model of a national economy? How can a researcher
compensate for or improve on the quality of statistics
available? The speaker will also present approaches
to incorporating the effects of external factors on
the domestic economy into the modelling process. Part
of session will be devoted to how to test and revise
the model to improve its performance. In connection
with this an important question for consideration
is whether one should follow the single or multiple
model route. What are the practices of other central
banks? What considerations should influence the particular
approach adopted by different central banks?
Producing
forecasts, projections and surveys
David
Mayes
Bank
of Finland
The development
of inflation targetting as a monetary policy framework
has placed an increased demand on central bank economists
to produce projections or forecasts for economic variables.
Constructing rigorous methods for computing figures
for the output gap and the sustainability of the deficits
are essential parts of this process. A series of case
studies will illustrate how central banks have approached
this technical challenge and, crucially, the challenge
of explanation to policymakers and the public.
Risk analysis:
one crucial development of recent years is the more
sophisticated treatment of risk and uncertainty. For
instance, in macro-forecasting, governing boards want
far more than an economist's "best guess" of what
is going to happen over the next few years. Point
forecasting is only a small part of the job - scenario
building, competing forecasts, fan charts are all
central. This day will also conclude with a workshop
session.
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Wednesday 21st April
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MONITORING
AND MAINTAINING FINANCIAL STABILITY
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Identifying
and assessing financial sector risks
Peter
Praet
Director,
National Bank of Belgium
Identifying
and assessing financial sector risks The role of economists
in supporting the central bank's responsibilities in
the area of financial stability is not as clear-cut
or clearly defined as it is in the area of monetary
policy, but it is nevertheless very important. Therefore
the challenge of defining exactly how economists can
best be deployed in this area remains unavoidable.
All central
banks are concerned to assure financial stability -
and most also serve as overseers of the banking sector.
In both capacities, the central bank faces the challenge
of guarding against the potential for systemic risks.
With no commonly accepted definition or quantified target
for "financial stability" where should research be focused
to generate the most useful results in terms of policy
advice? How can a central bank construct a picture of
the financial sector that will identify potential systemic
weaknesses and illustrate these to policymakers? How
can they assess the vulnerabilities of the financial
system to different kinds of shocks, including interest
rate and exchange rate shocks?
Financial
infrastructure: developing a better understanding of
international and domestic markets
Bent
Vale
Head
of Research, Norges Bank
Gaining a better
picture of what motivates and affects the behaviour
of participants in a domestic economy - as consumers,
investors and savers - is critical to improving understanding
of the economy and improving policymaking performance.
In situations where data may not be readily available
central banks need to be able to conduct surveys and
gain an understanding of their economy's workings at
the grassroots level. Conversely the increasing globalisation
and complexity of international capital markets and
instruments means that research must address global
trends and how they provide opportunities or pose risks
to the domestic banks and markets. This session will
consider the effective allocation of resources to these
strands and the synergies that can be achieved in the
planning of research programmes.
The output
of economists in the area of financial stability - a
role for a financial stability review?
Jukka
Vesala
European
Central Bank
Many central
banks are now publishing financial stability reviews.
Yet what precisely is their function? How much detail
is needed, or demanded by the prospective audience?
Whatever the particular vehicle chosen, all central
banks need to try to assess and explain the different
sources of risk affecting their financial institutions
and markets. Presenters will discuss the latest lines
of research in the area of financial stability, approaches
to the modelling of crises, the input that economists
can make to the regulation and supervision of financial
institutions and how controlled dissemination of data
itself can act as an aid to the financial stability
goals. Economists have much to contribute on topical
issues such as corporate governance, principal-agent
relationships, efficiency (especially payment systems),
and moral hazard and on systemic risk and spillovers.
A focus of this session will be on how measure and assess
the quality of the output of the bank's economists in
this challenging area.
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Thursday
22nd April
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MAXIMISING
VALUE - MARKET OPERATIONS AND THE EFFECTIVE PRESENTATION
OF ECONOMIC RESEARCH OUTPUT
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The role
of economists in market operations
John
Nugée
State
Street Global Advisors
This session
discusses the role of economists in operational aspects
of a central bank's tasks. One of the presenters, John
Nugée, formally executive director responsible for reserves
at the HKMA and head of reserve management at the Bank
of England, focuses on the expectations that the reserve
managers, dealers and those more involed in the operations
have of economic research and how interaction and coordination
can be managed.
Effective
presentation of policy advice to external audiences
Avinash
Persaud
Chairman,
GAM UK Ltd
This session addresses
the question of the research output of a central bank,
the methods and quality of presentation to the outside
world. What do market participants and the media find
most useful about central bank research, and the information
they disseminate? What does central bank analysis lack?
A group discussion will explore the most effective ways
of presenting information to market participants, commentators
and policymakers and how research can be directed to
better aid market understanding and the policymaking
process. Relations with the academic community, universities
and students will also be considered.
Learning
from the market
Kevin Gardiner
Learning from the
market Financial markets provide a crucial source of
information about the risks, expectations and policy
expectations in a domestic economy, but filtering out
the noise to obtain useful information is a specialised
and time-consuming task. Central banks, as major players
in the market, are uniquely placed to collect and process
information. How can central banks learn about domestic
and international market anticipation of price movements
and policies? What can be garnered from interpreting
market movements in lesser-developed financial markets?
This session will look at the techniques used by a leading
central bank to analyse and interpret movements in financial
markets.
Accountability
- communicating with official sector bodies
Finally, there is the contribution
of economists to fulfilling the responsibilities of
the central bank to official bodies. Transparency and
accountability have placed an increasing burden on central
bank research departments, as governments, parliamentary
committees and official sector organisations demand
timely and consistent publications and release of information.
Resources need to be balanced to deliver this as well
as develop a range of publications, from technical working
papers to informative leaflets and speeches. These can
provide fora for both internal as well as external research
that can make a contribution to wider policy debates
as well as build up a valuable source of information
on the domestic economy.
Again, the skills and techniques required
are somewhat different from those involved in communicating
to the media or scholarly audiences.
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Friday
23rd April
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INTERPRETING
AND EVALUATING QUANTITATIVE ANALYSIS
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Martin Weale
Director,
National Institute of Economic and Social Research
The two sessions led
by Martin Weale will focus on economic techniques for
the key role of modelling and communicating uncertainty..
Central banks are expected to demonstrate high levels
of competence and professionalism in conducting the required
analysis. Indeed, they should act as centres of excellence
for understanding and research of their economies. The
interpretation, evaluation and critique of econometric
modelling is thus a core skill for modern central banks.
But how should it be managed and organised? How should
the work programme or agenda of the economic model-builders
be formulated? How does senior management ensure that
the econometric skills of the staff are being put to good
use? How can the technical language of the model-builders
be translated into output relevant to (and understandable
by) non-specialists?
Central banks need
clearly to understand and make the best use of international
best practice of modelling and forecasting. Yet macroeconomic
education remains academically orientated. Two sessions
on the final day of this course discuss the application
of the specific econometric tools and techniques that
leading central banks make use of and explore effective
means of analysis and interpretation of the findings.
Delegates will learn how advanced modelling techniques
can be utilised and challenged to help develop a better
understanding of their national economy, the forces that
impact on it and the effect of central bank policy.
Closing session to round up the main points
of the week.
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