For more than three decades, the BoE has used fan charts to visualise the uncertainty surrounding its forecasts. As Ben Bernanke pointed out, most people have no idea what they mean.
The cloistered world of central banking is usually characterised by a clubbable atmosphere, but Ben Bernanke did not go easy on his colleagues at the Bank of England.
Officials and economists must handle vast quantities of ever-shifting data, processing new information as rapidly as possible to try to understand the economy and prepare new forecasts. Mr Bernanke said the current incentive structures encourage people to apply for jobs outside their current divisions if they want to climb the career ladder. “Based on what I’ve heard from staff, the bank is too weighted towards having people jump from area to area,” he said.
Compass also struggled to “capture fully” the way monetary policy works in practice and was too optimistic, with a “tendency to predict over-rapid returns of the economy to its steady-state equilibrium “. In its response, the bank acknowledged its models performed well when the economy was stable, but struggled when times got tough.
The charts are meant to convey to the public the range of possibilities and the inherent difficulties the bank faces in making policy choices. It’s a noble aim. But, Mr Bernanke pointed out, most people had no idea what they meant.
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