Apr 12, 2024 - Economy

Ben Bernanke's advice for the Bank of England

Ben Bernanke speaks at a conference

Former Fed chair Ben Bernanke at a conference last year. Photo: Al Drago/Bloomberg via Getty Images

Why were central banks so slow to respond to the inflation shock? The U.K. wants to answer that question — and it enlisted former Fed chair Ben Bernanke to examine its forecasting failure.

Driving the news: The results of Bernanke's review — released Friday — are 12 recommendations to the Bank of England to improve inflation forecasting during periods of extreme uncertainty.

Zoom in: In the review, Bernanke said the "most serious problem" was out-of-date tools and software that BoE staff use to produce forecasts.

  • He recommended the BoE scrap its "fan charts" that show a range of possibilities for how key economic variables — including inflation — could evolve over time.
  • They "convey little useful information over and above what could be communicated in other, more direct ways," the report says.

What they're saying: "This is a once in a generation opportunity to update our approach to forecasting, and ensure it is fit for our more uncertain world," BoE governor Andrew Bailey said in a release, adding that the bank would take action on all of the recommendations.

The intrigue: The review said the BoE should include more attention to the supply side of the economy — and the role it plays in the "determination of inflation and growth."

  • "Important supply-side factors include changes in productivity, labour supply, the efficiency of job-worker matching, supply-chain disruptions, and trade policy," the review said.

Yes, but: "[G]iven the unique circumstances of recent years, unusually large forecasting errors by the Bank during that period were probably inevitable," the review says.

Go deeper