WASHINGTON (Reuters) -European Central Bank chief economist Philip Lane argued on Friday that publishing alternative economic scenarios alongside the ECB’s economic projections may raise more problems than it solves.
Caught on the hop by a surge in inflation in 2021-22, the ECB and other central banks around the world are pondering ways in which they can incorporate and communicate the risk that economies perform differently to what they expect.
While the ECB sketched out scenarios diverging from its baseline at times in the past, including during the height of the COVID-19 pandemic, Lane preferred a richer discussion behind closed doors before consensus is reached.
“It is also not clear whether such a curated approach would be superior to a ‘many scenario’ internal staff analysis (possibly augmented by machine learning algorithms),” he told an event at the Federal Reserve.
“A basic concern is that the selected curated scenarios might turn out to have shined the spotlight on risk factors that proved to be immaterial and might give the impression that the risk analysis was too narrow in scope.”
Lane added that picking a few scenarios out of many possible ones for each policy meeting would be “logistically taxing” for an ECB Governing Council that includes 26 members.
ECB board member Isabel Schnabel floated the notion of publishing each policymaker’s expected rate path last year, but this prospect was quickly shot down by her colleagues.
(Reporting By Howard Schneider; Writing by Francesco Canepa in Frankfurt, Editing by William Maclean)
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