Will Big Data Keep Its Promise? Speech given by Andrew G Haldane Chief Economist Bank of England  Data Analytics for Finance and Macro Research Centre, King’s Business School 19 April 2018  The views expressed here are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Shiv Chowla for his help in preparing the text. I would like to thank David Bholat, David Copple, Andi Joseph, Perttu Korhonen, Katie Low, Clare Macallan, Paul Robinson, Michael Saunders, Misa Tanaka, Silvana Tenreyro, Ryland Thomas, Arthur Turrell, Arzu Uluc and Michalis Vasios for their comments and contributions. 1  All speeches are available online at www.bankofengland.co.uk/speeches  I am delighted to be here to launch the Data Analytics for Finance and Macro (DAFM) Research Centre at King’s College Business School. I would like to congratulate Professors George Kapetanios and Georgios Chortareas, as Co-Directors (as well as former colleagues), for getting the centre to the launch pad and primed for take-off. To get my punchline in early, I believe the application of data analytic techniques to the many pressing questions in finance and macro holds great promise. That is the reason the Bank of England, around four years ago, set up its own data analytics division. And that is why I very much welcome the setting up of this new centre, as a means of realising that promise. But will Big Data keep its promise?
At home, the main risk has to do with the evolution of inflation, mainly because of the unrelenting exchange rate depreciation and its accumulated effects on costs. This, in a context of margins that seem to have narrowed because of the high annual growth in nominal wages and the limited pass-through of lower fuel prices in some sectors. Therefore, the materialization of an external risk scenario that triggers a significant additional depreciation of the peso may have substantial effects on the short-term inflation outlook, which will depend on the state of the business cycle. On the other hand, it is also possible that, despite a recent improvement in domestic expenditure and output compared with previous quarters, private expectations will not improve sufficiently to stimulate further spending, especially in investment. Conversely, a scenario where expectations recover more strongly than expected would allow for more dynamic economic activity. The same can happen if the increase in national income has greater effects on expenditure in a context of more comfortable external accounts. After evaluating these risks, we estimate that, although local risks have moderated, the risk balance is still downward biased for output, while the risk balance for inflation is unbiased. Let me share with you some final thoughts now. 4  BIS central bankers’ speeches  Final thoughts Lately, the Chilean economy has responded to the big changes in the local and external environment, by making a major adjustment.