The Bank of England said that it will continually review its forecasting framework and has made it flexible enough to change its central model if needed, according to a research paper published by the central bank today.
The central bank’s Monetary Policy Committee in 2011 introduced a new forecasting framework used to form its economic projections, with the Central Organising Model for Projection Analysis and Scenario Simulation, or Compass, at its heart. Officials “in particular” will monitor whether the forecasting process might be improved by an alternative type of central model, according to today’s paper.
“A continual review is in place to assess the performance of the new forecasting platform,” wrote the paper’s authors, including the BOE’s Stephen Burgess and Richard Harrison. “The infrastructure has been designed to be sufficiently flexible to allow such changes to the nature of the central organising model if required.”
An independent review conducted by former Federal Reserve official David Stockton in November concluded the central bank’s forecasting capabilities had deteriorated in the previous five years, resulting in “large” errors.
In response, the BOE said it would provide more detail on the judgments underlying its forecasts. As part of that, its quarterly Inflation Report this week was the first in which the central bank immediately published the data underlying the so-called fan-chart projections. The bank said today that its forecasting platform supports the changes it intends to make.
“One advantage of the flexible information technology infrastructure described in this paper is that it can be used to support a variety of models,” the authors wrote. “Any decision to use a different central organizing model would be straightforward to effect.”
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