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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.
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.
University of Glasgow research, undertaken in collaboration with the Universities of Exeter and Oxford, directly influenced the Government decision to create the Office for Budget Responsibility (OBR). The Conservative Party cited the research as part of the rationale for the creation of such a fiscal body in its policy paper in 2008; the research was subsequently presented to the Strategy Unit of the Cabinet Office, No.'s 10 and 11 Downing Street and the Institute of Government throughout 2008 and 2009. The proposal was implemented by the coalition government in 2010, with the research team then using the findings to advise a Treasury Select Committee as well as the Bank of England on the appropriate remit, expectations and functions of the newly-created OBR.
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.
In 2010, the new Conservative government established the Office for Budgetary Responsibility (OBR) to provide independent and authoritative analysis of the UK's public finances. The economic case for an independent body to monitor fiscal policy was based on research by Professor Simon Wren-Lewis and his co-authors into fiscal policy rules and optimal debt policy. This research has provided important inputs to policymakers' thinking about fiscal councils, both in the UK and overseas. Work by Professor Wren-Lewis has strongly influenced and shaped the design and subsequent development of the UK's Office for Budgetary Responsibility.
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.
The European Central Bank (ECB) uses forecasting tools to make predictions about the Eurozone economy as a whole. The University of Leicester has worked with the ECB to modify its main forecasting tool to improve its ability to take effective and timely action to keep inflation low and minimise deflation.
Similarly, the United Nations prepares a submission to each G8 Summit which includes forecasting and policy analysis based on the economies of the 193 member states. The forecasting tool used to create this submission has also been created in collaboration with the University of Leicester. These modelling tools help the world's most powerful leaders - both political and financial - to make informed and timely decisions about issues affecting economic stability, global food security and international safety.
Research at Oxford by members of the International Growth Centre (IGC), funded by the Economic and Social Research Council (ESRC) and the Department for International Development (DFID), has played an important role in shaping two key areas of monetary and exchange rate policy formulation in East Africa.
Research on food prices and inflation in Tanzania is providing the technical basis for the discussions of the Monetary Policy Committee (MPC) of the Bank of Tanzania, and has contributed to current thinking by the African Development Bank (ADB) on policy responses to global food price volatility in East Africa.
Work on exchange rate policy has helped shape the Draft Protocol on East African Monetary Union currently being negotiated between the East African Community (EAC) partner states (Kenya, Uganda, Tanzania, Rwanda and Burundi).
Andrew Scott and co-authors have examined how government debt should respond to economic shocks. Their research shows incomplete debt markets should show large and long-lasting re-sponses: a 3-4 year financial crisis should generate a swing in debt over 20-30 years. This work has impacted European governments, Finance Ministers and Permanent Secretaries of the G7, the UK Debt Management Office, and others. In summary: cutting-edge research has impacted the contemporary thinking of policymakers as they formulate government debt management.
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.