After the Centre for Economic Policy Research (CEPR) conference in Frankfurt, I was invited by two economists to visit the European Central Bank (ECB) to discuss and share views about economic research and central banks (CBs). This was very helpful in learning more about the ECB and other central banks.
After some discussions with researchers from the ECB’s research department, it became clear to me that high-quality, policy-oriented research is a stated, new objective of the ECB, although it can be argued that it was being achieved in the past too. Some researchers at the ECB can spend all their time on research, something rarely found in other CBs.
Being allowed to spend 100% of one’s time on research only is not an unproductive strategy. In fact, I think that it is a good move. Of course, it cannot be generalized to all economists, for management, as well as personal reasons. A CB is not a university and has to produce internal, as well as external reports. Some economists prefer writing reports and analyses instead of doing economic/academic research. These managerial and personal views can be accommodated by creating a group of economists, which has the skills and the time to devote itself exclusively to research.
Why economic research in central banks is important ?
– In terms of monetary and macroeconomics research, it is essential.
In countries such as Israel, monetary and macroeconomics research is not well developed and the natural place for conducting research about macroeconomics and monetary economics is not necessarily the university.
– In terms of tasks and mandates, it is robust.
Some departments in a CB often ask research questions. Even if they generally need quick responses, it does not mean that robust answers are not sought. Providing a short report to answer a specific question is the role of an economist. Providing robust research requires clearing several verification steps (e.g., not only relating to the content, but also to the optimal way of presenting the results), ensuring an effective fulfillment of CB tasks and mandates.
– In terms of communication, it is useful.
Publishing understandable research helps CBs to communicate with the public. The word “understandable” is directly related to academic research. Why? Because academic research requires a double-blind review process, several stages involving revision and resubmission, revision, and the optimization of graphical representation. And, of course, it is always in English because other people are also interested in the Israeli economy, not just Israelis.
– In terms of credibility, it is an effective tool.
Let us take an example. As an Israeli, as well as a Bank of Israel watcher, reading and understanding high-quality economic research produced by it reinforces my trust in the institution. Again, the important word here is “high-quality,” an objective achievable only by taking the academic research publication path to high-quality journals. The reason that several CBs publish the ranking of academic journals internally is to guide and motivate their researchers to publish in them.
There are other reasons, justifications, and perspectives that could also be considered, and I invite the readers to share them in their comments. However, the main points discussed above should motivate CB research departments’ management to encourage academic research and create teams with full-time academic researchers.