Maximising the Value of Economic Analysis for Central Banks
4-day intensive residential programme, 17 April-
21 April 2005
Venue: Cumberland Lodge, Windsor
Course Chairman: David Mayes
Advisor to the Board, Bank of Finland
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,
prioritise them 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 theinstitution. In all such
areas, the input of economists and economic modeling 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 six years, the series have attracted over 700 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, PhD, CBE
Chairman, Central Banking Publications
Course Chairman: David Mayes Adviser to the Board, Bank of Finland
Challenges
facing the central bank’s economics function
David
Mayes
Bank of Finland
What do central bank boards and policymakers
expect of their economists and researchers? What are economics and research
departments expected to deliver? This important opening session will
review how different central banks approach these questions. To define
these requirements more precisely, the group will examine how economists
support not only the core central banking functions of monetary policy
and financial stability, but also other areas of the central bank’s
work.
The organisation and structure of the economics/research department(s)
Anders Vredin
Head of Monetary Policy Department,
Sveriges Riksbank
While economic analysis is at the heart of all
core central bank tasks, central banks organise the function in very
different ways. Should central banks centre economic research in a separate
department? This session addresses the place of the economics function
within the bank’s organisation, and examines how it should be
resourced and managed. This session also considers how carefully targeted
research programmes can serve to retain and motivate staff in addition
to meeting goals set by policymakers.
How can central banks deliver financial
stability?
Professor
Charles Goodhart
London School of Economics
Maintenance of financial stability is coming to
be recognised as one of the most important objectives for a central
bank. Central bank researchers and economists are at the forefront of
new research on how this goal can be achieved. This presentation from
Professor Charles Goodhart examines how in fact leading central banks
like the Bank of England, European Central Bank and the US Federal Reserve
approach this mandate. In particular, what is the best way of using
limited economic analytical resources in this field?
Workshop sessions
In a final session, participants will split
into smaller working groups to consider questions of how a central bank
can best utilise its economics staff to meet policy goals.
Brian Kahn
Deputy Head of Research, South African Reserve Bank
To execute monetary policy, central banks need a model of their domestic economy that is comprehensive but adaptable. This requirement raises several challenges: how, for instance, can a researcher compensate for limited, or poor quality, statistics available? How can the central bank’s model be revised andimproved over time? The speaker will address these issues and also examine how exogenous variablescan be incorporated into the modelling process.
Quantitative analysis – the state of the art
Tibor Hledik
Czech National Bank
While monetary policy makers do not have the luxury of waiting for economic theory to develop, central banks must work to incorporate new ideas and techniques into their policymaking process. The speaker, director at one of Britain’s leading independent economic forecasters, outlines the latest developments in quantitative analysis, and offers a critical assessment of their usefulness to central bank policymaking.
Producing forecasts, projections and surveys
David Mayes
Bank of Finland
In an inflation-targetting framework, the success of monetary policy depends on the accuracy of projections and forecasts made by central bank economists. Difficult estimates (of the output gap, or the sustainability of deficits) must be made. A series of case studies illustrate how central banks have approached this technical challenge and, crucially, the challenge of communicating forecast-based policy to politicians, markets and the public.
A framework for effective modelling
Workshop sessions
In this workshop session, participants will split into smaller working groups to discuss effective modelling techniques anyhow to encourage innovative approaches to understanding national economies.
Identifying
and assessing financial sector risks
Thorvald Grung Moe
Special Adviser, Financial Stability,
Norges Bank
Towrds a framework for financial stability
Andy Haldane
Bank of England
Are central banks close to developing a framework for financial-stability policymaking? In this session, Andrew Haldane will discuss the latest lines of research in the area of financial stability, approaches to the modelling of crises and policy tools for financial stability. 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.
What do we mean by financial stability?
Geoffrey Wood
Cass Business School, City University
Over the past decade, the phrase "financial stability" has come to signify an important function of central banks and other public authorities. Yet, in the words of the governor of the Swedish central bank, "the concept of stability is slightly vague and difficult to define." In this session, the speaker looks at how to construct a definition of financial stability, and discusses what kind of public policies should be adopted in its pursuit.
Role of economists in market operations
John
Nugée
State Street Global Advisors and former
Head of Reserve Management at the Bank of England
The demands of the central, monetary policy, mandate
can leave some critical areas of a central bank’s work in the shade.
This session discusses the role of economists in contributing to the full
range of central banking tasks. The presenter, formally executive director
responsible for reserves at the HKMA and head of reserve management at
the Bank of England, focuses on the expectations that reserve managers,
dealers and operational staff 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
How should central banks present their research
output 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. Relations with the academic
community, universities and students will also be considered.