Bank of England’s forecasting needs urgent revamp, says ex-US Fed chief Bernanke – POLITICO

Modeling alternative scenarios, he argued, would also better communicate the uncertainty inherent in forecasts, as well as provide more timely guidance on which assumptions underlying them were true or false.

The corollary of this decision, as expected, was a recommendation that the Bank should abandon the use of so-called “fan charts” in its forecasts, which it said “have outlived their usefulness” .

Bernanke suggested that the forecasting procedure relegates the importance of future market-implied interest rate developments, which is currently the focus of the Bank’s regular reporting. However, he stopped short of saying the Bank should remove them, saying it was a longer-term issue.

Governor Andrew Bailey said the Bank was committed to implementing the review’s 12 recommendations. However, he opposed suggestions that the company was not doing enough to upgrade its infrastructure, saying a significant investment program was already underway.

Bernanke said much of the additional investment needed could come from better use of the Bank’s data-savvy researchers. He advised making them work more focused on building and maintaining new forecasting models, and suggested the bank do more to promote those with the necessary capabilities “into the role.” Historically, the Bank likes to rotate staff between different departments as part of their career development.

Bailey and the rest of the MPC now find themselves in a period of limbo: its current method of working has been widely discredited, while Bernanke has indicated that it will take years to develop a new one. Bailey said during the press briefing that the Bank would report on what is expected to be a multi-stage restructuring by the end of the year.

This article has been updated.