Thursday, February 4, 2016

Thought experiment

What would central bank forecasts look like (compared to data) if they were using the wrong macroeconomic theory?


Update 14 April 2016

Here's another one:

Update 9 June 2016, H/T @NinjaEconomics

Update 15 March 2017, H/T @Rumplestatskin (Cameron Murray)

Update 11 July 2017


  1. Too funny! I hope you don't mind, I borrowed those (giving an H/T (and a link) to you of course).

  2. I am always impressed by the Bank of England's ability to believe that they can hit their 2% inflation target in 18 months to two years from any given point in time. Their 'forecasts' are really only confirming their own continued belief in their own competence. It would be interesting to see what would happen if they ever made a different forecast as that would suggest that they didn't believe in their own ability to meet their target.

    This is really a governance problem rather than a forecasting one. It is unlikely that any organisation would publicly admit its own incompetence / impotence. Better just to hope for the best.

    The problem is exacerbated by the fact that virtually the entire mainstream economics profession has, for the last 30 years, supported the concept of an independent central bank with an inflation target. This means that challenging the central bank's competence also challenges the competence of the economists' own advice, so that's unlikely to happen either.


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Also, try to avoid the use of dollar signs as they interfere with my setup of mathjax. I left it set up that way because I think this is funny for an economics blog. You can use € or £ instead.