Eric Lonergan

I spent a year at the Bank of England as a Senior Houblon Norman Fellow during the transition from Mervyn King to Mark Carney. Research economists briefed the Monetary Policy Committee ahead of their meetings but the information they presented could easily have been assembled by an AI. @cmatthes_econ @t_holden A second important input was the reports of the Bank’s regional agents who presented anecdotal evidence. For example, an agent might report back on his/her conversations with business representatives in Sheffield. That information would be harder to replicate by AI. A third important input, was from a few trusted individuals on staff who had the ear of the Governor. Monetary policy was run by discretion — not in any sense by ‘rules’. Prior to my Bank of England experience I spent several summers visiting the Econometrics group at the ECB. I naively believed, on arrival, that the econometricians would examine the data and convey a set of ‘facts’ to the research economists. The research economists would analyze the facts and convey to the policy makers the best strategy that could be offered by economic theory. In practice, that process runs in reverse. The policy makers decide what they want to do and they convey their opinions to the research department. The research economists go to the econometricians and say: make it so. In other words, the forecasts were reverse engineered to justify the policy actions. This is in no way a criticism of monetary policy in practice. It is a recognition that policies adapt to circumstances in ways that are not easily captured by mechanical rules.