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.
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 at Oxford by members of the International Growth Centre (IGC),
funded by the Economic
and Social Research Council (ESRC) and the Department for International
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).
The world financial crisis and recession of 2007-
2009, and the continued stagnation of global
economies, has raised the question of how
governments and central banks should respond
in deep recessions. Prof. Evans and colleagues
have shown using macroeconomic models with
adaptive learning that after large pessimistic
shocks, a rapid switch to aggressive monetary
easing is required and aggressive fiscal policy
may be needed. To achieve policy impact this
work has been presented in numerous central
bank conferences, and it has caught the
attention of several members of the US Federal
Reserve Open Market Committee (FOMC). The
policies of the FOMC since 2008 have been consistently aggressive, despite
public criticism and
even dissension within the FOMC itself. This research has provided
important academic support
for the application of these policies.
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.
Paul De Grauwe developed and tested the theory that financial markets in
the Eurozone can push countries into a vicious circle of economic
recession, increasing government debt levels and banking crises in a
self-fulfilling way. One of the main policy conclusions of this analysis
is that the European Central Bank (ECB) is the only institution that can
prevent countries from being pushed into such a vicious circle. This can
be achieved by the ECB becoming the lender of last resort in the
government bond markets of the Eurozone.
After much hesitation the ECB accepted this analysis and decided in
September 2012 to become the lender of last resort in the government bond
markets of the Eurozone. It called this "Outright Monetary Transactions"
(OMT). This decision was of great importance and led to a quick
stabilization of the government bond markets in the Eurozone. De Grauwe's
research influenced this policy reform as well as the wider policy debate
on reform of Eurozone governance.
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
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
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.