The science of economics: why central bankers need academic training
Thursday, 7 November 2013
Central bankers need to pay close attention to macroeconomic research, argues Australian School of Business (ASB) Economics
Professor James Morley.
Professor Morley said much is made of the need for bankers to have direct experience in regulation of the finance industry, but he believes continuing education about economic modelling and macroeconomic research is crucial.
Professor Morley said central bankers need to understand and draw from academic proposals on "best practices" for monetary policy and learn how to address challenges such as the zero-lower-bound on interest rates in the United States and other countries.
"Academics are increasingly taking leadership roles in central banks - think Ben Bernanke or Janet Yellen. Also, a quick look at top academic journals reveals many prominent publications by central banker researchers - such as Frank Smets at the ECB," Professor Morley said.
"Academic research can help central bankers to model the impact of expected future policy changes on the current economy, measure "economic slack" in modern economies and account for data revisions when forecasting and evaluating macroeconomic theories."
Professor Morley will speak at a "Continuing Education" workshop on Friday which brings together Australian university academics and researchers from the RBA and RBNZ to learn about new methods in macroeconometrics, a field of economics that evaluates the macroeconomic theories used to inform monetary policy.
Professor Charles Nelson from the University of Washington will provide insights into why the standard statistical methods used to evaluate macroeconomic theories can produce misleading inferences, and will suggest a more robust approach.
Key masterclass presentations:
- Solving Rational Expectations Models with Structural Change by Mariano Kulish (UNSW)
- Estimating the Output Gap by James Morley (UNSW)
- Real-Time Data Analysis by Kalvinder Shields (University of Melbourne)
The ASB plans to continue and expand the workshop in coming years to bring together researchers from central banks throughout the Asia-Pacific region, including China.