Insights from the UK and beyond
BoE’s King “doesn’t do sex appeal”
Bank of England Governor Mervyn King was on good form when he addressed the Royal Society – Britain’s oldest scientific discussion club – on the vexing issue of communicating complex forecasts to the great unwashed.
Aside from his usual moan about the media’s desire to reduce the BoE’s beautiful but baffling ‘fan charts’ of inflation forecasts to one or two numbers, he made a rare and welcome admission that in past years the central bank had not done as well as it could have to flag up the risk that a financial crisis was about to happen.
The BoE’s financial stability reports – like those from many other central banks – sometimes sounded as if they were crying wolf in the years running up to the credit crunch by warning of pretty much every risk to markets short of Martian invasion.
So King’s suggestion that in future the BoE might give a percentage probability for whether the world is about to go to hell in a hand basket would certainly make it clearer to see when the central bank really thinks the storm clouds are gathering.
(Though of course when their 20% forecast comes true, they’ll be asked why they didn’t give shorter odds, and when it doesn’t they’ll be accused of scaremongering.)
Sadly the message that less is sometimes more doesn’t seem to be getting through when it comes to the BoE’s quarterly forecasts of growth and inflation.
As well as fan charts, King said we might be able to look forward to ‘probability ribbons’ and 3D graphs (colour-coded for probability density) that most resemble a map of ski runs for an Alpine resort.
King told his audience that the central bank “don’t do media sex appeal” – and with these diagrams he shouldn’t need to worry. Fan chart fans, look no further than the following link to the BoE’s proposals.