MNI INTERVIEW: RBA Targets More Real-time Data

The Reserve Bank of Australia wants to make greater use of real-time metrics and would benefit greatly from more immediate services-sector data in future as it works to more accurately gauge the state of the economy and inform its monetary-policy decisions, a former RBA economist told MNI.

Luke Hartigan, now a lecturer at the University of Sydney, said the RBA board has less immediate official insight into services compared to the goods sector, with the most comprehensive reading only available when the Australian Bureau of Statistics releases its quarterly National Accounts.

The RBA already incorporates single-touch payroll figures to help measure labour market change, he said in an interview, noting the Reserve would also benefit from the proposed monthly CPI that is to be rolled out in future.

The ABS currently produces a quarterly CPI print and a monthly CPI Indicator. The ABS has not stated when it expects to publish monthly CPI.

NOWCASTING COVID

Hartigan has received an ARC Discover grant to develop so called nowcasting techniques and recently published a joint paper with the RBA titled Quarterly GDP Growth during the COVID-19 Crisis Using a Monthly Activity Indicator.

The RBA used the MAI throughout the pandemic to help it more quickly detect abrupt changes in conditions and has added it to its suite of nowcast models, which also includes a real-time news monitor, and is also investigating further extensions. The Reserve has no plans to publish its nowcast data publicly.

Hartigan noted his next projects will involve applying traditional types of methods for computing indices alongside machine learning techniques to increase flexibility and also singling out the most informative indicators.

“These indicators will then feed into a project my colleagues at The University of Melbourne are looking at, trying to understand the main drivers of economic activity in a timelier way,” he added, noting monetary-policy and fiscal-policy shocks were the focus. “How do these shocks flow through the economy? How does that impact activity? How does that impact inflation and how does it impact employment?"

Current techniques supplied policymakers with out-of-date data, he added. What we're trying to do is give policymakers tools, information or guidance about what's happening, not exactly in real time, but as close as it is possible so that it's more able to be used for helping them make more informed decisions in the present.”

RBA LAGS

While other central banks have been more enthusiastic about incorporating similar real-time data models, the RBA has lagged, Hartigan noted, adding the bank has typically been slow to innovate compared to other central banks, such as the Reserve Bank of New Zealand.

"They're looking at a variety of different techniques," he said, adding the RBA historically wanted to ensure models were thoroughly tested and senior managers had confidence in the results generated by the techniques.