The Bank has been pursuing inflation targets for 25 years, and the average rate of inflation has been extremely close to target over that period. This alone suggests that our models have done their job reasonably well. And while our current models continue to perform well, recent experience is pointing to some shortcomings that we need to address.
Given how long it can take to develop a new model, investing in the next generation of models is one of the Bank’s top priorities, and I want it to be a top priority for the economics profession as well. Better tools will mean a more stable and predictable rate of inflation, and an even better environment for economic decision making.