Last July, due to the high inflation rate in the UK, which was higher than the level of the eurozone, Bank of England Governor Andrew Bailey was fiercely criticized by lawmakers and economists.
That month, the Bank of England invited former Federal Reserve Chairman Ben Bernanke to lead the review of the bank's economic forecasting process. Next Friday (April 12th), the Nobel laureate in economics will officially release a proposal to provide advice to the Bank of England on predicting the economic outlook.
His main research areas are monetary policy and macroeconomic history. In 2005, Bernanke served as the Chairman of the Presidential Economic Advisory Board during the Bush administration, and in 2006, he succeeded Greenspan as the Chairman of the Federal Reserve. He was awarded the Nobel Prize in Economics in 2022 for his outstanding contributions in the field of banking and financial crises.
It is expected that Bernanke will recommend a series of innovative measures to the Bank of England next week to update its process of predicting the economy and repair its damaged reputation. Last month, Huw Pill, Chief Economist of the Bank of England, stated that this review "will provide a rare opportunity to update and improve the framework of the Monetary Policy Committee.".
According to some officials, Bernanke will introduce a series of options, and whether to implement them will depend on the decision of the Monetary Policy Committee (MPC) of the Bank of England, as well as seeking the opinion of British Chancellor of the Exchequer Jeremy Hunter. Two weeks ago, Bailey told the media that the "fan-shaped chart" launched by the bank 30 years ago will soon be retired.
The sector chart mentioned by Bailey is a statistical chart used to represent the possible range of future values of a random variable. It is composed of a centerline and a series of fan-shaped regions, which represent the range of future values at different confidence levels.
It is expected that this chart will be replaced by the "scenario analysis" proposed by Bernanke, as scenario analysis can better convey the different positions held by MPC members. In fact, since last year, the Swedish central bank has been regularly using scenario analysis, which the bank believes is "very important for policy communication".
In addition, the Bank of England may attempt to use a "dot matrix". It is understood that the dot matrix first appeared at the Federal Reserve at the end of 2011, when officials were considering how to prepare the market for a shift in monetary policy measures after the financial crisis.
Both Bernanke and then Vice Chairman Janet Yellen (now Secretary of the Treasury) believed that a grid chart could allow the market to understand the Federal Reserve's thoughts beyond current policy decisions. Bailey told the media that members of the Monetary Policy Committee may feel it is necessary to disclose their personal interest rate paths.