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MNI INTERVIEW: BOE Models Can Ditch 2% Inflation Expectations

(MNI) London

The BOE could respond to Ben Bernanke's criticism of its forecasting by using survey inflation expectations, a former head of modelling at the Bank tells MNI.

Bank of England models can be reworked in line with recommendations by former Fed chief Ben Bernanke to remove an assumption that inflation expectations always return to the 2% target, but it would be better to produce staff forecasts without input from policymakers, a former head of BOE modelling told MNI.

While Bernanke was sharply critical of the assumption in the BOE’s central model, Compass, in his recent review of its forecasting, Francesca Monti pointed out that the BOE’s quarterly economic forecasts are not just the product of models but also serve as a communication device for the Monetary Policy Committee, whose members use their judgement to provide input throughout the forecasting process.

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Bank of England models can be reworked in line with recommendations by former Fed chief Ben Bernanke to remove an assumption that inflation expectations always return to the 2% target, but it would be better to produce staff forecasts without input from policymakers, a former head of BOE modelling told MNI.

While Bernanke was sharply critical of the assumption in the BOE’s central model, Compass, in his recent review of its forecasting, Francesca Monti pointed out that the BOE’s quarterly economic forecasts are not just the product of models but also serve as a communication device for the Monetary Policy Committee, whose members use their judgement to provide input throughout the forecasting process.

Keep reading...Show less