Celebrating 100 years of Federal Reserve’s Division of Research and Statistics – Beragampengetahuan

Not very often central banks celebrate 100 years of its Department/Division of Research and Statistics (R&S).  The R&S depaprtment serves as the basis of not just monetary policy but another R&S function of the central bank- Regulation and Supervision.

Federal Reserve recently celebrated 100 years of Division of Research and Statistics in form of a conference: 

The Federal Reserve is hosting a conference on November 8, 2023, to celebrate the centennial of the Division of Research and Statistics.

The Division of Research and Statistics (R&S) was created in 1923 when the Division of Analysis and Research was consolidated with the Division of Statistics. The R&S division has long been responsible for providing key support to the Board and the FOMC on a broad range of economic and financial matters. The division also produces some of the Board’s surveys and statistical releases, including the Survey of Consumer Finances, the Financial Accounts of the United States, and the Index of Industrial Production. In addition, R&S staff generate academic research that further the public’s understanding on inflation, unemployment, financial developments, and many other topics.

Jerome Powell in opening remarks discusses functions of R&S:

For those listening outside this room, I will briefly outline R&S’s responsibilities. A large part of the division, along with other divisions at the Board, is engaged in producing the Tealbook, which contains the staff’s forecast for the U.S. economy, as well as a great deal of data and analysis on financial and economic issues, and which is delivered to the Federal Open Market Committee (FOMC) before our meetings.

Outside of the FOMC meeting cycle, R&S deploys its experts wherever they are needed across the Board, providing crucial inputs to work on financial stability, bank merger analysis, and many other topics. R&S is also an ongoing source of specialized information for policymakers. If Board members have questions about even the most arcane workings of some aspect of the economy, they can send an email and, in no time, be sitting down with some of the best-informed experts on that subject. Much of the time, these are R&S economists. During the pandemic, when questions arose about how the computer chip shortage was affecting auto production or how businesses were responding to the backlog at U.S. ports, R&S gave detailed briefings on these topics. Among its other activities, the Board of Governors is one of the world’s most productive economic research institutions, and a large share of that work takes place inside R&S, supporting our mission of promoting a healthy economy and a strong and stable financial system.

I’ve spoken about research—now let me turn to statistics. In addition to the gathering of data from many sources outside the Federal Reserve, R&S is itself the source for some of the most important data on the economy and the financial system. Our consumer credit data provide financial markets and the public with a vital indicator of the strength of household spending and balance sheets. Each month, the Industrial Production report gives us insights into how well certain sectors of the economy, especially in the manufacturing realm, are operating. R&S is also responsible for the Financial Accounts of the United States, a quarterly compendium of assets, liabilities, and transactions for different segments of the economy. And every three years, R&S conducts the Survey of Consumer Finances, a premier source of detail and insights about how households are faring in the economy. The latest survey was published just last month. These and other data series produced by R&S are a significant public service.

Closing remarks by Governor Philip Jefferson shares his experiences working with the Division:

In keeping with the conference theme, I have organized my remarks around the past, present, and future of R&S. My reflection on the past, while idiosyncratic, is also, I believe, indicative of a through line that characterizes the division historically. For me, that past begins in 1983, when I came to the Board as a newly minted college graduate to be a research assistant (RA) in the Government Finance Section, now known as Fiscal Analysis. One of our primary tasks was to keep track of the volatile, and somewhat unpredictable, fluctuations in tax receipts. The daily numbers were transmitted not by computer, but by telephone. Other data retrieval required RAs to go to the Treasury directly in the luxurious conveyance of a D.C. taxicab, reimbursed by the Board—a little perk that, as it happened, never came my way. In our section, though, it was a lot of time on the phone, and the two economists I worked with, Al Teplin and Wolf Ramm, would take down the numbers and pass them to me.

Obviously, many things have changed in R&S over the past 40 years. But one thing that hasn’t changed much is the role of RAs in analyzing data and participating in other important functions performed by the division. Back then, armed with those tax receipt numbers, I would be expected to put together a projection. My bosses had their own projections, of course, and they subjected my work to very careful review. But I was given that assignment because there was a widespread view then that RAs were here to learn and to contribute meaningfully to research and policy work, and I felt a considerable responsibility to do the very best I could with the important work I had been given.

Much has changed at R&S, but those values remain. As a young college graduate, I was impressed with how seriously people in R&S took their responsibilities, whatever their role. I am not the only person whose experience as a young person in R&S was formative. In my case, it might seem remarkable that a former R&S RA has returned as Vice Chair, but for decades, former RAs have been returning and serving in leadership roles at the Board and throughout the System.

Moving from the past to the present, it has been a while since the things we thought we understood well about the economy were subject to as much debate as they are today. At the same time, an explosion of available data, much of it of high frequency and from unconventional or alternative sources, has given R&S many more potential avenues for analyzing the economy and, hence, much more to do.

The list of alternative data sources available to forecast economic outcomes seems almost endless, including social media posts and web traffic, credit card purchases, geolocation, and satellite imagery. These alternative data have transformed the way economists forecast future outcomes and measure the effectiveness of monetary policy. For example, economists can use postings to social media sites to analyze investors’, journalists’, and households’ real-time interpretation of central bank communications.²

 However, a wealth of data does not necessarily translate into better forecasts and better insights. Recent academic research suggests that alternative data mainly help forecast short-term outcomes and not so much long-term outcomes.³ This is why it is important that R&S continues to be at the forefront of research, making sure we are making the right inferences with new tools and new data sources.

In the middle of opening and closing remarks, NY Fed President John Williams discusses dual transformation in mometary policy and R&S

Other speakers will discuss key aspects of the evolution and contributions of R&S over the past century. I will focus my remarks on the past 30 years. This corresponds to my own time as a researcher and policymaker—as a member of R&S for the first seven years, then as a consumer of R&S products while at the San Francisco and New York Feds. In that time, the theory and practice of monetary policy have changed dramatically. Equally striking are the ways that transformation has influenced R&S research and analysis, and the ways the work of R&S has, in turn, influenced monetary policy.

….

I’ll start with one development that, in important ways, connects them all: the birth of the famous “Taylor rule,” in 1993, from John Taylor’s “Discretion versus Policy Rules in Practice.”¹

Instead of approaching policy as a one-time tactical decision of whether rates should be higher, lower, or stay the same, the Taylor rule laid out an overall strategy for setting interest rates in any circumstances in terms of a reaction function. And it spawned research on a vast collection of monetary policy rules and optimal control policies.

The Taylor rule transformed monetary policy research. The areas of study broadened from short-term analysis and impulse response functions to key longer-term issues. This included the principles of effective policy strategies, trade-offs between policy goals, effects of the zero lower bound, and the roles of the so-called “star” variables—the inflation target, potential output, and yes, the neutral interest rate, or r-star—that all appear in the policy rule.

The Taylor rule not only altered the way monetary policy is conceptualized, but also changed the way R&S and the other research divisions approached questions related to the economic outlook and monetary policy.

At the Fed, the wheels of change may sometimes turn slowly, but the Taylor rule helped get those wheels spinning.

Nice bit of monetary and macro history…

This entry was posted on November 10, 2023 at 12:47 pm and is filed under Academic research & research papers, Central Banks / Monetary Policy, Economics – macro, micro etc, Financial Markets/ Finance, Speech / Interviews. You can follow any responses to this entry through the RSS 2.0 feed.
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