I just spent a wonderful few days at the 2019 Africa Meeting of the Econometric Society held in Rabat, Morocco with the central bank, the Bank Al-Maghrib, providing an excellent venue. Congratulations to the Bank Al Maghrib for its 60th anniversary year and also to the Econometric Society for its upcoming 90th anniversary in 2020.
One sees positive economic changes coming to this part of Africa, and it is good that the Econometric Society is meeting here. Morocco is looking to join the Economic Community of West African States (ECOWAS) which includes, among other countries, Nigeria, Senegal, Côte d’Ivoire, Ghana, Liberia, Mali, Niger, Benin and Togo. I have travelled to these countries and worked on the US-Moroccan Free Trade Agreement a while back. The idea of an expanding free trade zone is breathtaking especially if combined with other pro-growth reforms. The Bank Al-Maghrib has widened the exchange rate band and capital controls are gradually being relaxed. Several years ago, I spoke in Casablanca about the promise of economic reform, and now it seems to be underway.
But most of all I was impressed by the many sessions of the Econometric Society which demonstrate how economic ideas are spreading throughout the region and the world. The latest econometric methods were evident throughout. So was big data. One paper examined export and import data in Malawi from 219 countries, with tens of thousands of observations. Another examined the impact on net interest margins of 2,442 banks affected by negative interest rates. This transmission and global conversation is in marked contrast to days when I started out in econometrics, long before there were African meetings of the Econometric Society. It bodes well for the spread of technology generally as a means to improve people’s lives.
My keynote address at the conference delved into the history of the use of econometric models for monetary policy going right up to what has happened in the past few months. I started out with “path-space” models such as the Tinbergen model which looked at the impact of different paths of the instruments on target variables. Then “rules-space” approaches began with a major paradigm shift, and central bank models changed for the benefit of policy and performance. Then there was a retrogression, at least in major parts of central banking world, as central banks deviated away from more rules-based approaches, and economic performance deteriorated in the global financial crisis. The lesson learned from history is that we need to get back to rules-space. Now, just in time, there is a revival of policy rules research, evident in papers, publications, actions, and statements by Fed officials and other central bankers.
The history shows that there are important benefits from a rules-based monetary policy, while it lasts, and that even expectations of a return to rules has benefits. The recent changes in research are promising, as are the other developments in Africa. What can econometricians do to prevent the deviations and encourage rules-based policy. How can econometric research ideas help? My suggestions at the meeting included more robustness studies on different models and parameters, more development and use of international models to evaluate rules, more research with “quantitative easing” as an instrument in a rule, and a greater focus on the interface between research on rules in central bank research departments and the decisions of central bank policy officials.