What the Bernanke review says about the state of forecasting

The Bank of England’s forecasting process appears to be in disarray, according to a review of its forecasting process by former Federal Reserve chair Ben Bernanke. This has had an impact on its decision making and the credibility of the institution. We firmly agree with all of the review’s forecasting process recommendations, though it appears from the BoE’s initial response that change will be slow to happen.

What you will learn:

• The most worrying aspect of Dr Bernanke’s review is that he felt the need to call out the BoE’s forecasting infrastructure, in particular the state of their main macroeconomic model which is, in practical terms, no longer fit for purpose.
• The BoE’s unwillingness to accept alternative scenarios in favour of the flawed fan chart concept has always been baffling to us.
• The last part of the Bernanke review’s recommendations focus on how the forecast and uncertainties around it are communicated. While we have sympathy with the points the review makes, this is certainly an area that all economists can become better at – ourselves included.