The Federal Reserve is the most optimistic. The Bank of Japan made the biggest mistake. The Bank of Canada is the most accurate, but it's got the easiest job.
These are just a few of the findings of Bloomberg's first-ever ranking of Group of Seven central banks according to their ability to forecast their own economies. Turns out the financial crisis really did ruin everyone's estimates, just like the Greek crisis might this year, and complicated economies are harder to deal with.
The best forecaster of all: the International Monetary Fund. It beat the Bank of Canada, the winner in the rankings, more often than not on growth and inflation.
But the IMF doesn't have a national mandate to set interest rates or deploy other tools, which is a key reason central banks exist and the motive for their forecasts. The projections are cranked into guidance on future policy moves that banks are offering more than ever — guidance that gets used by companies and governments for their own decisions.
“Central banks ought to be much better at what they do,” said Rob Carnell, chief international economist at ING Groep in London. “If they're trying to convince us all that they know where things are going by using forward guidance you'd think that they know something that we don't. But unless they're much better at analyzing the data, we shouldn't listen to them and they've got nothing to say.”
The Bloomberg analysis shows central banks' performance has improved as the crisis eased. Since 2012, as the European debt crisis started to fade, they've mostly had lower forecast errors for either growth, or inflation, or both. The BOE had one of the biggest improvements, with its forecast error for inflation falling to 0.68 percentage point from 1.23. The BOJ is still struggling with its growth projections, with the average error rising to 2.1 percentage points from 1.39 point.
To compile these results, Bloomberg looked at gross domestic product estimates one year ahead, inflation two years ahead, and compared them to average annual results from 2005-2014. The overall score reflects a Taylor Rule approach that gives equal weight to growth and inflation. (The methodology is here and the numbers behind the rankings are here.) Bloomberg also compared banks' performance over the 10-year period to the last three years, and to an index created by the Massachusetts Institute of Technology Observatory of Economic Complexity.
The results also show that the Fed's estimates overshot GDP in nine of 10 years. The BOJ's miss on growth in the 2008-2009 fiscal year was the biggest, at 5.2 percentage points versus 2.6 percentage points in Canada. The Bank of England had the biggest inflation miss, underestimating consumer price gains by 3.1 percentage points in 2011.
The European Central Bank was the only one to significantly outperform the IMF on growth, beating it in eight of 10 years. The Bank of Canada beat the Washington-based lender just three out of 10 years on growth and two out of five years on inflation.
Full > http://tinyurl.com/nfdvv4c
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*You might wish to consider saving something outside of paper dollars.
