Catherine Mann, MPC member of Bank of England in this speech at the centenary celebrations of Bank of Mexico points to 5 Cs of central bank research:
Economic research at central banks plays an important role: for the institutions themselves, the economists employed there, and for the decision-makers. Here are 5 ‘Cs’ of research, relevant to central banks but also other institutions with decision-making responsibility in policy and the marketplace: credibility, currency, communication, careers, and change.
Research is the currency of the economics profession, which fundamentally is about understanding the relationships between households, businesses, and financial firms. Good research lends credibility to the institution through more informed decision-making. For the central bank, credibility is crucial to the functioning of monetary policy, its transmission, and monetary policymakers’ capacity to affect output and inflation. The credibility of the institution also depends on investment in this currency of the profession. Investment in staff’s careers who undertake this research implies they have time, resources and guidance to engage in research that supports the policy objectives of the institution.
Research also changes and evolves – new data and methods support progress in the profession and help me as a policymaker to make judgements based on a range of data sources and models. Knowledge-sharing of research across institutions, enabled by conferences like these, encourages innovation.
Finally, credibility, career, currency, and change come together through various forms of communication of that research, as a key ingredient to research quality and decision-making. The Bank of England’s outlets include, among them, internal poster sessions for work in progress, nearly journal-ready staff working papers, and the new Macro Technical Paper series, intended to document models, analysis and conceptual frameworks that underpin monetary policy preparation. Other Bank outlets include the ‘bite-sized’ Bank Overground posts, and importantly, Bank Underground, the staff blog which can challenge – or support – views of the Monetary Policy Committee or the orthodoxy of the profession. Alongside Bank publications, our researchers also publish in top-tier peer-reviewed academic journals, as well as presenting both at Bank-organized and at top academic conferences. And, of course, research at the Bank is often highlighted in policymaker speeches, as I will be doing today.
From data analysis to theoretical modelling, econometric techniques and textual analysis, research at the Bank of England has provided important cross-checks for me – particularly to the baseline forecast that at times could not capture important dynamics such as state-dependencies, non-linearities and asymmetries in economic relationships that underlie the monetary policy transmission mechanism, the importance of the inflation expectations channel, and the dynamics of demand.
This speech will discuss some of the most recent staff research on the UK that informs my policy decision. I will emphasize research on inflation but will also highlight analysis that shows an increasing tension between inflation persistence and weak growth – the trade-off that we currently face in the United Kingdom. I will finish by discussing how this research influences my monetary policy strategy.
