The Bank of England’s economic forecasters failed to predict and prepare for the cost-of-living crisis brought about by high inflation, partly due to poor software quality and a tendency to make only small, sequential changes, a “once-in-a-generation man” has said. review.

evaluate announced last year The former Fed president says the quality of the Fed’s economic forecasts “has deteriorated significantly over the past few years” due to outdated software and “excessive incrementalism.”

Economic shocks ‘inherently difficult to predict’

Although “unusually large forecast errors” are considered “probably unavoidable” according to a review conducted by Dr. Ben Bernanke.

The report said that this problem is not unique to central banks, but is faced by all central banks and private forecasters.

A global shock of unprecedented magnitude has damaged economies around the world and pushed up prices.

Coronavirus lockdowns have caused supply chain shortages and bottlenecks, while Ukraine’s incursion has sent energy prices soaring.

Dr. Bernanke’s comments said such events are “inherently difficult to predict.”

The central bank made many inaccurate forecasts, such as anticipating a year-long recession and failed to consider the impact of rising wages on inflation, and has been accused of failing to raise interest rates high enough or fast enough to slow inflation.

Interest rates have now risen to a 2008 financial crisis high of 5.25% in an effort to drain money from the economy and curb economic activity.

“One of the most serious problems”

One of the “most serious problems” predicted by the bank is that “key software is outdated and lacks important functionality,” the review said.

Dr. Bernanke said there was “serious underinvestment” due to short-term pressures on central banks.

The review said a “significant financial investment” would be needed to fund the upgrades, but did not discuss a specific amount.

new way of doing things

According to Dr. Bernanke’s report, new forecasting methods should also be used.

More precisely, the central bank should build models for various economic scenarios, including those where wages and prices rise.

Greater emphasis should be placed on regular reviews of supply chains, job market offerings and trade policies.

Other sectors affecting the economy should also be modeled, including the financial, housing and energy sectors.

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The Bank welcomed the review and Mr Bailey said work had begun to implement the recommendations.

However, he added that it would take “some time” to develop detailed plans before they can be implemented.

No timetable has been given for adoption, although Mr Bailey said a “phased approach to implementing changes may be appropriate for a program of this scale”.

Mr Bailey admitted last year there were “very big lessons” to be learned On how central banks are responding to recent economic shocks.

While at the helm of the Federal Reserve, Dr. Bernanke led the world’s largest economy through the 2008 financial crisis.