The fact that the new model makes them explicit can be intellectually helpful. But it doesn’t make it any easier to provide answers to questions about expectations and credibility. What if some agents base their decisions on simple rules of thumb? BEQM has features that allow us to accommodate such questions when we are forecasting – but in a more ad-hoc way that requires a substantial degree of judgement. We are still learning how to exploit all BEQM’s possibilities. But it clearly represents a move towards the ‘Pagan frontier’, offering a higher degree of theoretical coherence without losing empirical performance. A number of other central banks are working on similar models – the ECB, Bank of Canada, FRB, Norges Bank and Bank of Finland – as well as the IMF. The international modelling community is an exemplary forum for the exchange of ideas and experiences, and we have learnt – and will continue to learn – a lot from the experience of others. No model can do everything. All models oversimplify drastically. The trick is to identify an appropriate degree of simplification for the task in hand. So the Committee has never been prepared to rely on one model. This has led to attempts to develop a suite of models. 4  Harrison, R, Nikolov, K, Quinn, M, Ramsay, G, Scott, A and Thomas, R (2005) The Bank of England Quarterly Model. 5  For a description of the previous model, see Economic Models at the Bank of England (1999).
Rachel Lomax: Inflation targeting in practice - models, forecasts and hunches Speech by Ms Rachel Lomax, Deputy Governor of the Bank of England, to the 59th International Atlantic Economic Conference, London, 12 March 2005. I am most grateful to Jens Larsen, James Bell, Fabrizio Zampolli and Robin Windle for research support; and to Charlie Bean, Peter Andrews, Spencer Dale, Phil Evans, Laura Piscitelli and other colleagues at the Bank of England for helpful comments. *  *  *  Introduction Five and a half years ago in his Monnet lecture Charles Goodhart1 was able to talk with some confidence of the features that particularly distinguished the UK’s approach to inflation targeting. Today with over 20 countries, in every habitable continent, formally operating some variant of inflation targeting and many more adopting some parts of the framework, all actively sharing experience and best practice, I suspect that most aspects of our approach would find a counterpart somewhere else in the world. But Charles’s focus on the Monetary Policy Committee’s (MPC) personal engagement in producing a published inflation forecast still seems to me to capture the essence of the UK’s approach. Today I want to talk about the role that forecasting has come to play in helping the MPC to take and communicate its decisions. In what sense does the Committee really ‘own’ the published forecasts that go out under its name? How much use do we make of models, and what models do we use?