Pill: Financial Cond Indices Can Both Be Too Simple And Too Complicated

Q: The BOE has an internal financial conditions index but it's not published. BOE's Mann has her own FCI. Should this be published with more commentary on where financial conditions are?

• A: We set Bank Rate in a way that it is the active instrument to get inflation back to target. How that transmits through the economy is at the heart of discussions.
• Question is, is it helpful or useful to try and summarise that through some sort of weighted average of asset prices. Sceptical we can do that in an effective way. There are dangers of that being too simplistic (although also dangers of being too complicated).
• We are making an assessment of key credit indicators as well as lots of other factors. Don't think there is a 1-to-1 relationship between credit spread and where inflation will be in 2-3 years time.
• We need to know why it is moving, and need a structural view on this. Adding up changes in spreads into an FCI ignores the reason for these movements and treats all widening the same.