Forecasts, or probabilistic statements in general, can easily be misunderstood or misinterpreted. As a result, forecasters may decide to withhold information, even when, correctly understood, there is something useful in the forecast – a case in point being the recent Met Office withdrawal of medium term seasonal forecasts. When experts retire from the field, it is left wide open to quackery – and there is no shortage of quacks whether in medicine, economics or meteorology. So there is a major challenge in explaining that, although we may not have a precise prediction of the effects of a particular policy action, nor are we wholly ignorant of its consequences. Finding illuminating ways of expressing those judgements is difficult but important. We must not pretend to know more than we do, and we must avoid the delusion of spurious precision. 7. Communication in practice: fan charts  It is time to put some flesh on the bones of these abstract discussions. It is time in fact for a show – a slide show of the graphical representation of the uncertainty about future inflation which the Bank of England uses to communicate its views about the outlook. The Bank of England publishes a range of documents which describe the uncertainty about our analysis of the economy, and hence the uncertainty inherent in setting policy. Our longest-running, and perhaps the best known, is the quarterly Inflation Report, which the Bank has been producing since 1993.
The trigger policy I noted above and level-targeting policies may result in inflation running at rates that would make us uncomfortable during normal times. But we should not be afraid of such temporarily higher inflation results today. As I noted earlier, Ken Rogoff (1985) has written that in normal times, we may want conservative central bankers as institutional offsets to what would otherwise be inflationary biases in the monetary policy process. But these are not usual times – we are in the aftermath of a financial crisis with stubborn debt overhangs that are weighing on activity. And as Rogoff himself wrote in a recent piece in the Financial Times, higher inflation could aid the deleveraging process.11 To quote him: “Any inflation above 2 percent may seem anathema to those who still remember the anti-inflation wars of the 1970s and 1980s, but a once-in-75-year crisis calls for outside-the-box measures.” Conclusion Last year about this time economic conditions deteriorated to the point that we undertook discussions on how to provide further monetary accommodation – and we ended up with our second round of large scale asset purchases. Now, one year later, we again find ourselves with a weakened economic outlook and again trying to decide what further accommodation to provide. I’m sure everyone will agree that we seriously don’t want to be in this position again at this time next year. I believe that means we need to take strong action now. Thanks. 11  8  Rogoff, Kenneth S. 2011.