BOE Chief Economist Says Blinds Spots Exist Among Policy Makers

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.”.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza