Carney’s Research Chief Revamps BOE Thinking After Crisis Drain

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At the Bank of England, Sujit Kapadia says he’s been given free rein as Governor Mark Carney pushes an overhaul of how the institution thinks about the economy.

Two years after a critical report into the BOE’s forecasting record, Kapadia is leading a new unit analyzing everything from monetary policy and financial regulation to climate change and digital currencies such as Bitcoin. Part of the change is to regain lost ground now the recession is over.

“During the financial crisis, more resources got devoted to dealing with the pressing issues around distress in the banking system, stress in the macro economy,” Kapadia said in an interview in London. “To some extent, there was less scope or capacity to take forward research initiatives.”

Carney’s reshaping of the research function, which included appointing a new chief economist with an expanded mandate, is just one part of a remodeling of the institution since he took over in 2013 that’s touched everything from monetary policy to the staff sports day. It can also be seen as a response to the 2012 Stockton Review, which said the BOE should encourage staff to be “more assertive” and challenge the “house view.”

“The research has to be relevant to the BOE,” Kapadia said. “There is that constraint. But in terms of how we conduct research, and the responses that we make to those questions, there is freedom.”

International Standing

Kapadia was speaking on the eve of a BOE conference on Wednesday that’s part of the bank’s drive to improve research and its standing among peers such as the Federal Reserve. He said staff should be “questioning and challenging orthodoxies.”

“The BOE ranks fairly well but we want to increase the profile of our research and the impact that it has in the international debate,” he said.

The BOE put the economist in charge of the newly created Research Hub last year, as well as recruiting ex-Barclays Plc strategist Paul Robinson to head up a new Advanced Analytics unit. Both teams work with the institution’s monetary analysis, financial stability and supervision areas, remits that reflect Carney’s desire to merge departments and improve coordination of the central bank’s expanded responsibilities. They are separate from the Monetary Analysis area, led by Gareth Ramsay, which deals with day-to-day economic projections.

“It focuses more on areas where typically less emphasis has been placed on research in the past,” Kapadia said.

International Impact

Kapadia’s unit will run a team into which bank staff are temporarily seconded to work. It will also seek contributions from external experts and he expects to be able to lure new researchers with the new thinking and the hub’s close link to the policy debate.

At the conference in London, Carney and his four deputies are leading discussions on the new research agenda. Key themes include the interaction of the BOE’s expanded responsibilities, rethinking regulation and risk after the financial crisis, new sources of data, and the impact of longer-term issues such as climate change.

“Economies are complex, dynamic and constantly evolving systems,” Carney said in statement before the conference. “Policymakers need research to help understand these phenomena and to craft our responses.”