Inflation targeting was chosen as “the best of all bad” alternatives at the time. Such a sudden switch from a fixed exchange rate system to inflation targeting required a radical and fast change in the central bank’s mentality. This was perhaps the biggest challenge that the CNB had to face. Over the past five years it has involved much work on improving our forecasting tools, leading to substantial development in our internal analytical processes. These changes culminated at the beginning of 2002, when the CNB settled on a new forecasting process. This integrates expert judgment and short-term analyses – which were the key pillars of the CNB’s forecasting tool-kit in the first years of inflation targeting – with a small-scale macroeconomic model developed by the CNB’s staff with the assistance of the International Monetary Fund. An important element of this step was a switch from a forecast with a fixed-interest-rate assumption to an unconditional forecast that includes a reaction function of the central bank. The established quarterly projection model was a small-scale model belonging to the first generation of such models. It was thus fairly simple and arguably missed many important links in the economy. Nevertheless, it was already quite close to the state-of-the-art among the inflation-targeting central banks around the world, and intense work has been in progress to build a higher-generation model. We are now just about ready to use regularly our newly developed so-called “third generation” general equilibrium model, which is fully based on micro specifications.
Our aspiration is to contribute to the development of future leaders that are able to effectively operate in this new environment. The establishment of the Asia School of Business is, therefore, a complementary initiative to meet the increasing demand for talent with such leadership and management capabilities. Bank Negara Malaysia is most honoured to partner with the MIT Sloan School of Management in the establishment of the Asia School of Business. The Bank is very much drawn to the education philosophy of MIT Sloan that emphasises on both analytical rigour and practical application to real-world challenges through project-based, action learning, and the focus of its relevance to the different economic sectors. The Bank also shares MIT Sloan’s dedication to encouraging innovation and entrepreneurship. The increasing importance and influence of Asia in the global economy has increased international interest to better understand Asia – the economies, businesses and people that comprise the region. Being home to a significantly diverse group of businesses – from multinational corporations to large home-grown conglomerates and vibrant small and medium-sized enterprises, Asia provides unique educational and research opportunities to advance thought leadership in a wide range of activities. The Asia School of Business will offer two key differentiating value propositions: the emphasis on the practical application of business management education, to apply theories of the classroom in a broad range of organisational and institutional settings; and to be a global knowledge and learning centre that focuses on insights, perspectives and expertise from the emerging world, especially the Asian region.