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Why central banks need to think historically

Summary:
Austen Saunders of Bank of England has a nice post on the Bank Underground blog (HT: Good friend Bhanu Pratap) Central banks want to learn from history. They can do so by drawing on decades of work by economic historians, as well as their own archives which manifest layers of institutional memory. But the path from page to policy can be difficult to find. Central banks need therefore to invest in the capacity of their own staff to think historically. This will help them use evidence from the past to make better decisions in the future. In practice, this means producing historical research as well as consuming it. Institutions like central banks need to be fluent participants in the conversations which bridge the distance between past and present. …… The past is not enough. Economic

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Austen Saunders of Bank of England has a nice post on the Bank Underground blog (HT: Good friend Bhanu Pratap)

Central banks want to learn from history. They can do so by drawing on decades of work by economic historians, as well as their own archives which manifest layers of institutional memory. But the path from page to policy can be difficult to find. Central banks need therefore to invest in the capacity of their own staff to think historically. This will help them use evidence from the past to make better decisions in the future. In practice, this means producing historical research as well as consuming it. Institutions like central banks need to be fluent participants in the conversations which bridge the distance between past and present.

……

The past is not enough. Economic history is a complement, not a substitute, for unhistoricised, theoretical and empirical approaches. But is distinct from them because it does different things. Quantitative research can reap important insights from historical data but, where relationships are not stable and patterns in the data changeable, the data must be approached with an historical mindset. Otherwise it will be forced into a straight-jacket which might be quantitatively robust, but which ignores the movement over time and the specificity of all historical moments which gives the past meaning. These are the details which cannot be assumed away, but must be carefully attended to if the past is to speak to the present.

Future of history?

What is the future of the past? If central banks are to benefit from the lesson of history, then they need to develop research expertise alongside a sophisticated theory of history which, like all the best theories, will be manifested more in practice than in statement. Staff at central banks (both those with and without formal historical training) should therefore have opportunities to pursue historically informed research projects. Doing is always the best way of learning, and thinking through historical problems which are relevant to contemporary objectives is the best way for supervisors, analysts, and researchers to acquire an historical mindset. For the same reasons, it is desirable that training programmes and curricula for qualifications include exercises in historical analysis.

Meanwhile senior policy makers need to know when they should be thinking about problems historically by analysing parallel, contrasting, and connected episodes from the past. These might mean formally incorporating historical analysis into decision making processes. Most importantly, policy makers should know what questions to ask of those who bring them historically informed insights. No-one charged with setting interest rates would ignore the quantitative analysis of the current state of the economy they were offered. But nor would they accept it unquestioningly. They would probe and question and form their own judgements. The same should be true of historical analysis.

In time, central banks should learn to think about doing history in the same way that they think of their other research: an ambiguous but essential guide to the future.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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