BOE’s chief economist says ‘collective blind-spots’ may still exist on the committee
In a speech on Monday, Bank of England chief economist Andy Haldane is to criticise a failure to discuss banking issues by monetary policymakers before the financial crisis, and warn that “collective blind-spots” may still exist on the committee.
Haldane will say he was closely watching for signs inflation in the UK would fall below the Bank’s target.
In his speech about the psychology of central banking, Haldane will praise various features of the policy-setting framework that help guard against “cognitive ticks that can affect human decision-making”. But on so-called “groupthink”, where people tend to adapt their view to conform to those around them, he sees evidence of shortcomings ahead of the collapse of Northern Rock, then Lehman Brothers and the “Great Recession” that followed. He’ll say it was too soon to tell whether other collective blind spots remained on the monetary policy committee (MPC).
Referring to work by researchers at Warwick University, which analysed minutes from MPC meetings, Haldane points out that banking issues were low down on the agenda during the period of economic calm prior to the crisis known as the “Great Moderation”, but rose up as the crisis struck.
“For the decade prior to 2007, banking issues did not get much of a look-in. They typically accounted for only around 2% of MPC discussion time during the Great Moderation. With hindsight, given emerging pressures in the banking sector, this was a collective blind spot,” Haldane will tell a Royal College of Medicine conference.
“It is too soon to tell whether any collective blind spots remain. But compared with the pre-crisis period, the Bank today has two extra pairs of policy eyes through the prudential regulation authority (PRA) and financial policy committee (FPC). Joint meetings between the MPC, FPC and the PRA board now take place. These help strengthen the committees’ peripheral vision and are a safeguard against groupthink.”.
His speech will go on: “Improvements to the Bank’s forecasting process have some considerable distance still to travel”.
