(h) The Contribution of the Financial System to the Economy and to Society: One of the striking features of the past several decades has been the rising share of financial services in measures of economy-wide value-added and, in tandem, rising financial sector balance sheets as a fraction of GDP in a number of economies. Sometimes this goes by the name “financialisation”. There are good reasons to think increasing financial depth is a natural feature of economies as they grow and develop. Indeed, there is a fairly well-established literature quantifying the boost to growth and productivity which arises from financial depth, especially for developing countries (Levine et al (2000)). Latterly, however, the question has been asked whether it is possible to have too much of a good thing. Some have asked why the cost of financial intermediation continues to rise and what this might signal about the efficiency of financial services as an industry (Friedman (2009), Philippon (2015)). Others have pointed to a possible U-shaped relationship between measures of financial depth and productivity and growth (Cecchetti and Kharroubi (2012), Heil (2017)). These questions have an important bearing on the contribution the financial system makes to the economy and to society. They are also meta-questions for regulatory policy. They warrant further research. (i) Financial Stability Implications of FinTech: Technologically-enabled innovation in financial services, or FinTech, has grown rapidly in recent years. The FSB’s recent report contains a useful taxonomy of such innovations (FSB (2017f)).
Simon M Potter: Models only get you so far Remarks by Mr Simon M Potter, Executive Vice President of the Markets Group of the Federal Reserve Bank of New York, for the Federal Reserve Banks of Atlanta and New York's First Annual Joint Research Day on Quantitative Tools for Monitoring Macroeconomic and Financial Conditions, Federal Reserve Bank of New York, New York City, 22 February 2019. * * * Accompanying Figures of the speech. As prepared for delivery It is a pleasure to deliver the lunchtime address during the Atlanta and New York Fed's first annual research day on quantitative tools for monitoring macroeconomic and financial conditions.1 My remarks will focus on some insights from the book Superforecasting by Philip Tetlock and Dan Gardner, with respect to how we interpret, use, and evaluate the results from our quantitative tools.2 If you have read the book, subtitled "The Art and Science of Prediction," you will probably be aware that it is much less mathematical than the discussions we have been having today, but at the same time is more complex in how it articulates the role of forecasting in good decision-making. Before I continue, I should note that these remarks reflect my own personal views and not necessarily those of the New York Fed or the Federal Reserve System. The insights in Superforecasting grew out of a forecasting tournament sponsored by the Intelligence Advanced Research Projects Activity (IARPA).