Uncertainty, Policy and Financial Markets - speech by John Gieve

In a speech at the Barbican Centre in London, John Gieve, Bank of England Deputy Governor for Financial Stability, discussed the range of uncertainty facing monetary policy makers, emerging lessons from the US sub prime market and the significance of influential investors, including Sovereign Wealth Funds.
Published on 24 July 2007

John Gieve argued that the ‘Great Stability’ seemed to have reached its zenith of total predictability between summer 2004 and summer 2006, 24 months when interest rates scarcely moved at all. Even in that period “there was a vigorous debate underway (within the MPC) about the state of the economy and the policy response” reflecting “genuine and unavoidable uncertainty about the economy which was disguised by the stability of rates but never went away”. He described the current position as “a return to normality after two years of exceptional predictability in monetary policy both in the UK and elsewhere”. He noted that that the level of uncertainty was not reflected in the range of independent forecasts whose “central projections tend to cluster in a remarkably narrow range…To gauge the real range of uncertainty you need to look beyond the central forecasts at the full probability distribution of possible outcomes”. This was why the Bank always published its forecasts in the form of fan charts.

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