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The Bank of England recently admitted it had “big lessons to learn” from its failure to forecast inflation using existing models. You are not alone: the story of the last two years has been that central bankers have been caught, repeatedly, by price increases. So what models should they use? A recent paper by Parisian quantitative fund manager Jean-Philippe Bouchaud and co-authors Max Sina Knicker, Karl Naumann-Woleske and Francesco Zamponi has a possible answer. Title aside, “Post-COVID Inflation and the Monetary Policy Dilemma: An Agent-Based Scenario Analysis” was one of the most exciting monetary policy posts released in the first half. Unlike the static formulas in most macroeconomists' toolbox, agent-based models (ABM) are scenario generators in which a large number of "agents" interact based on a set of rules.
Here's Bouchaud advocating this approach in the letters pages of the FT in the mists of time 2018. (If you're a macroeconomics nerd wondering why you've never heard of ABMs before, this blog post helps Job Function Email Database to explain why). Using agent models, economists can understand and learn about the outcomes of the interactions of different complex scenarios, which often lead to emergent and unpredictable behavior. Such as, I don't know, inflation and our global economy. Summing up the approach, Bouchaud said: The philosophy behind the model is to generate qualitatively plausible scenarios: we want to be more or less right and not exactly wrong, to quote Keynes. This paper contributes to the growing dogfight over appropriate responses to post-Covid inflation by creating a flexible framework for evaluating different policy options in the context of various drivers of inflation, including demand-driven inflation, rising costs and profits, which has been the subject of all kinds of devastating economic discourse lately.
You can read the full document here, and for a TL; DR, Bouchaud's Substack lists some key takeaways. These are some of the most interesting conclusions I found: Central Banks are… important? Who knows? The paper's model initially assumed a "Slack Central Bank," something many economists have insisted has long been the case. It turns out that without a central bank, small fluctuations in the economy quickly become large fluctuations. “In the absence of active central bank targeting, the amplitude of the resulting inflationary swings is considered substantial, ranging between 2% and 8% annually.” 2) Low confidence in the central bank and inflation go hand in hand Bouchaud et al. discover that when people trust an “active” central bank, controlling inflation is a result of trust, not interest rates. The reduction in inflation “is not primarily due to the impact of interest rate policy, but rather to the strong anchoring of expectations, which significantly reduces expected (and therefore realized) inflation.
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发表于 2024-3-7 18:19:47
