The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Thursday, January 20, 2011

More extraordinary criticisms of the BoE's credibility

And I am impressed with the BoE's intellectual honesty, which, admittedly, has been forced upon it by circumstance. But it must be said that these attacks are remarkable. If the RBA gets behind the inflation curve again in 2011--after its efforts in 2006-08--it might face similar accusations. From the FT:

"Almost half of leading economists believe the Bank of England has lost credibility in its inflation forecasts – a withering assessment of the central bank’s achievement of inflation control.

After the Bank persistently underestimated the strength of price pressures in the past three years, 34 out of 78 economists, or 44 per cent, said the credibility of its forecasts had been damaged by the inflationary overshoot. The most recent figure for inflation was 3.3 per cent in November, double the 1.5 per cent the Bank was forecasting as recently as February 2010.

Four out of 10 former MPC members contacted as part of the survey said the failure to predict inflation had damaged trust in the Bank’s forecasts.

Charles Goodhart, a former MPC member and LSE academic, said: “Its forecasting is losing credibility. [But] it has not lost control.”

Rises in inflation expectations “support the view that the Bank has lost some of its anti-inflationary credibility”, said Willem Buiter, now at Citigroup.

DeAnne Julius, chairman of Chatham House, said: “It is surprising to me that only one MPC member is concerned enough about persistently overshooting inflation – in the face of sustained growth – to vote for a rise in interest rates.”

John Muellbauer of Nuffield College, Oxford, was not alone in blaming the quality of the Bank’s forecasting models and modelling assumptions. “It is currently spending £2m on a new ‘Dynamic Stochastic Equilibrium Model’ in which there are no banks, no credit flows, financial crises are ruled out, asset markets are efficient and unrealistic assumptions are made about drivers of inflation,” he said.

“There is a growing sense that the Bank is no longer committed to an inflation targeting framework,” said Stephen King of HSBC.

“The MPC gives every appearance of having lost the plot,” said Mike Wickens of the University of York. “I suspect ... that behind the scenes the chancellor has indicated that he doesn’t mind the Bank not keeping to its remit.”"