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Garratt's research on methods for quantifying the uncertainty surrounding macroeconomic forecasts, uncertainty which arises from not knowing the true model of the economy and from having to use inaccurate data, has been applied by Central Banks and national statistical agencies in their forecasting exercises and their analysis of policy interventions. Notably, Norges Bank (the central bank of Norway) has developed a system called the System for Averaging Models, which they use when they make macroeconomic forecasts and when they predict the effects of possible monetary policy actions, which incorporates Garratt's results.
Garratt's research provides new methods to allow for uncertainty about the 'true' model by using combinations of different possible models, when making forecasts. His research provides new procedures to take `data uncertainty' into account, when forecasts have to be based on real-time data (that is, inaccurate data which is available to the policymaker when a forecast is produced but which is revised later on). Garratt's research quantifies the effect of this uncertainty on forecasts by constructing probability density functions. Central banks and statistical agencies have applied his findings when making forecasts and undertaking policy analysis. Garratt's research has been disseminated through refereed journal articles, conference presentations, consultancy work with policy makers, and presentations to policy makers, including an invited presentation to HM Treasury.
Research published between 2003 and 2010 on central bank design has established Sibert as an internationally-recognised authority whose ideas have changed the way that policy makers, academics and the public think about monetary policy committees and have influenced efforts to increase the accountability of these committees and the call to increase female participation, particularly at the Bank of England and the European Central Bank. Recognition of the practical value of this research-based understanding is evident in her 2009 appointment to the newly-formed Icelandic five-member monetary policy committee.
Sibert's research investigates the structure of central banks and monetary policy committees, as well as other decision-making groups, and on how their design affects their performance. In particular, she focuses on how it matters that monetary policy is made by a group rather than an individual and how a monetary policy committee can be designed to produce the best possible outcome for monetary policy. She communicates her research through refereed journal articles, invited publications; policy articles, speeches and opinion pieces.
Research by Surrey's Centre for International Macroeconomic Studies (CIMS) has had significant impact on monetary policy in several emerging economies.
This case study highlights impact in Nigeria and Pakistan. Both are important emerging economies: Nigeria is the second largest economy in Africa and ranks 30th by world GDP (adjusted for purchasing power parity), while Pakistan ranks 27th; yet GDP per capita is relatively low in both.
Since 2008, Surrey research has: (1) led to the establishment of a new Centre for Survey Research at the State Bank of Pakistan, collecting data that have directly influenced the Bank's monetary policy; (2) steered reform of the macroeconomic models used by the State Bank and the Central Bank of Nigeria; and (3) helped develop a new approach to monetary policy Nigeria.
Since the global financial crisis triggered by the collapse of the subprime mortgage market in the United States, a key issue for central banks has been the extent to which they should use monetary policy, along with macroprudential tools, to promote financial stability. University of Manchester (UoM) research has developed small theoretical models, and more detailed quantitative macroeconomic models, to help address this issue. This analytical work has helped to: firstly, influence the policies and operations of several major central banks (Brazil, Turkey and Morocco); and secondly, fuel the debate about global reform of bank regulation in international forums, such as the Financial Stability Board, the Basel Committee on Banking Supervision and annual meetings of central banks from Latin America. Impact has been achieved through presentations to these forums, alongside discussions with senior policymakers from other countries.
Research by the School's Centre for Finance, Credit and Macroeconomics (CFCM) on the monetary transmission mechanism has been influential in improving the design, implementation and effectiveness of the monetary policies of a number of central banks, including the Bank of England, Banque de France and the European Central Bank. The research has influenced changes in the way that official monetary aggregates are measured so as to capture the impact of non-bank financial institutions on the money supply and credit availability, and in better understanding of how monetary policy affects different interest rates. This in turn has allowed for improved control by central banks of their policy targets, and for better understanding of the effects of their monetary policies on economic activity and inflation.
Following the global economic crisis of 2007, the question of how macroeconomic policies could be used to ameliorate its consequences has come to the fore. Research led by Professor Patrick Minford at Cardiff Business School (CBS) has promoted a shift in policy in the UK in a classical direction and away from the Keynesian demand management approach. CBS researchers from the Julian Hodge Institute of Applied Macroeconomics (JHIAM) have shown through economic modelling how a series of measures, for example, clear monetary rules which target inflation, could benefit the UK economy. The research has also been used both directly and indirectly, via MPs and intermediaries, to inform policy debates around such major issues as Britain's membership of the European Union (EU), as well as contributing to the wider public debate.
Economic models with adaptive learning developed in Mitra's research are increasingly being adopted by policy authorities and in the training of graduate students. The usual paradigm in economics, rational expectations (RE), unrealistically assumes complete knowledge on the part of policymakers and households. Mitra's work has emphasised informational limitations faced by policymakers and provides guidance for policies in these situations. Monetary policy is an area where different types of models are heavily used and their results are one input to the policy decisions. The impact of this case study should be seen by virtue of pioneering an approach that has come to be accepted by the economics profession as the realistic one to analyse macroeconomic policy changes under bounded rationality; this approach has led to a large outgrowth of applied models used in policy making in recent times. These policy oriented works have provided support for the aggressive monetary and fiscal stimulus packages that have been adopted in the wake of the financial crisis in 2007. They have been disseminated widely through presentations at numerous conferences sponsored by central banks in the presence of senior policymakers. The research has also influenced the teaching of macro and monetary economics; it is part of reading lists of leading MPhil/PhD programmes and has in part contributed to PhD students specialising in this broad area of research.
The making of monetary policy requires accurate forecasts of key monetary variables, and in particular of the inflation rate. Research conducted by Charemza has led to the development of new methods of forecasting inflation. The relevant information is summarised in a Monetary Policy Indicator (MPI) that can be used to identify the optimal timing of active monetary policy. Since June 2006, the MPI has been applied by the Monetary Policy Council (MPC) of Poland in the process of deciding on the levels of monetary instruments (interest rates and reserve levels). The use of these methods has contributed to Poland's economic stability and helped to ensure unprecedented growth of the Polish economy in the last decade.
Small area estimation (SAE) describes the use of Bayesian modelling of survey and administrative data in order to provide estimates of survey responses at a much finer level than is possible from the survey alone. Over the recent past, academic publications have mostly targeted the development of the methodology for SAE using small-scale examples. Only predictions on the basis of realistically sized samples have the potential to impact on governance and our contribution is to fill a niche by delivering such SAEs on a national scale through the use of a scaling method. The impact case study concerns the use of these small area predictions to develop disease-level predictions for some 8,000 GPs in England and so to produce a funding formula for use in primary care that has informed the allocation of billions of pounds of NHS money. The value of the model has been recognised in NHS guidelines. The methodology has begun to have impact in other areas, including the BIS `Skills for Life' survey.
Giancarlo Corsetti has a long-term engagement with monetary authorities (the European Central Bank and since 2010 the Bank of England) where his research has had an impact on the development of frameworks for analysing stabilization policies in open economies. Since September 2010, his research has specifically focused on: (a) monetary policy trade-offs between internal objectives and exchange rate misalignment and external imbalances; (b) macroeconomic stabilization with high and variable sovereign risk; (c) the design of a monetary backstop to government debt. The research has had an impact through setting policy research agendas; through the inputs into scenario and econometric analyses; through forming the basis of Giancarlo's contribution to high-level policy seminars and the basis of his training of central bank officers.