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Using bank supervisory data to improve macroeconomic forecasts

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Author Info
Joe Peek
Eric S. Rosengren
Geoffrey M. B. Tootell

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Abstract

Locating the function of bank supervision in the central bank has been a contentious issue, both domestically and internationally. Most discussions of the role of bank supervision in central banking have focused on crisis management and the responsibilities of the central bank as a lender of last resort. However, recent research by the authors has shown that confidential supervisory information garnered through bank examinations potentially can improve the forecasts of key macroeconomic variables and thus the conduct of monetary policy. Forecasting macroeconomic variables is essential to the conduct of monetary policy, since the long lags in the effect of monetary policy ensure that changes in monetary policy today alter the economy only in the future. This article explores further the robustness of the results reported earlier. It examines the pattern of the forecast errors of the individual private forecasters studied, and confirms the earlier results. Thus, the article concludes that an important reason for central banks to have access to confidential supervisory information, and possibly to participate in its collection, is that such information can improve macroeconomic forecasts and in this way improve monetary policy decision-making.

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Publisher Info
Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (1999)
Issue (Month): Sep ()
Pages: 21-32
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Handle: RePEc:fip:fedbne:y:1999:i:sep:p:21-32

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Related research
Keywords: Macroeconomics ; Forecasting ; Bank examination ; Unemployment ; Inflation (Finance) ; Bank supervision ; Banks and banking; Central ; Monetary policy;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Peek, Joe & Rosengren, Eric, 1995. "Bank regulation and the credit crunch," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 679-692, June. [Downloadable!] (restricted)
    Other versions:
  2. Diana Hancock & James A. Wilcox, 1992. "The effect on bank assets of business conditions and capital shortfalls," Proceedings, Federal Reserve Bank of Chicago, pages 502-520.
  3. Robert DeYoung & Mark J. Flannery & William W. Lang & Sorin M. Sorescu, 1998. "The informational advantage of specialized monitors: the case of bank examiners," Working Paper Series WP-98-4, Federal Reserve Bank of Chicago. [Downloadable!]
  4. Allen N. Berger & Sally M. Davies, 1994. "The information content of bank examinations," Finance and Economics Discussion Series 94-20, Board of Governors of the Federal Reserve System (U.S.).
    Other versions:
  5. Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999. "Is bank supervision central to central banking?," Working Papers 99-7, Federal Reserve Bank of Boston. [Downloadable!]
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  6. Bernanke, Ben S, 1983. "Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression," American Economic Review, American Economic Association, vol. 73(3), pages 257-76, June. [Downloadable!] (restricted)
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  7. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March. [Downloadable!] (restricted)
  8. Jeremy C. Stein, 1995. "An Adverse Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy," NBER Working Papers 5217, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October. [Downloadable!] (restricted)
  10. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-35, September. [Downloadable!] (restricted)
  11. Anil K Kashyap & Jeremy C. Stein, 1994. "The Impact of Monetary Policy on Bank Balance Sheets," NBER Working Papers 4821, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Stephen K. McNees, 1992. "How large are economic forecast errors?," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 25-42.
  13. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June. [Downloadable!] (restricted)
  14. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marco Hoeberichts, 2002. "The Credibility of Central Bank Announcements," Banco de España Working Papers 0221, Banco de España. [Downloadable!]
  2. Péter Gábriel & Klára Pintér, 2006. "The effect of the MNB’s communication on financial markets," MNB Working Papers 2006/9, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
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