Central banks tap big data to help craft policy

Bloomberg

Central bankers around the world have set up or are creating departments to embrace big data in the quest for deeper insight into the economies they manage.
“Isaac Asimov once said, ‘I do not fear computers. I fear the lack of them,’” David Hardoon, chief data officer at the Monetary Authority of Singapore, said in a recent speech. “We are now starting to put in place the necessary tools, infrastructure and skillsets to harness the power of data science to unlock insights, sharpen surveillance of risks, enhance regulatory compliance and transform the way we do work.”
Authorities like Hardoon are tapping publicly-available sources such as Google Trends and jobs websites to help “nowcast” their economies, and confidential
data like credit registers that can help identify a stressed bank. Collection of micro data increased after the financial crisis, when policy makers realised they lacked the depth of information to make
appropriate decisions.

JAPAN
The Bank of Japan has been using big data since 2013 to analyse economic statistics, starting off
by beating private forecasts on
the accuracy of its GDP predic-tions and evolving its own experimental index that has pushed
the government to assess if it’s
understating growth.
Yoshimasa Hayashi, a member of parliament from the ruling party, wants to use big data to capture economic numbers directly rather than rely on surveys.

CHINA
The People’s Bank of China in May said it will increase the use of big data, artificial intelligence and cloud computing to boost its ability to recognise, prevent and reduce cross-sector and cross-market financial risks. China’s regulators have generally steered clear of financial technology innovations, which have spawned success stories such as Jack Ma’s Ant Financial, but have also led to problems such as online lending fraud.

INDIA
The central bank last year set up a separate technology unit to look at cyber security as well as research and innovation. Its board includes Viral Acharya, deputy governor in charge of monetary policy at the Reserve Bank of India.

SINGAPORE
The Monetary Authority of Singapore this year started a Data Analytics Group and hired Hardoon to lead it. “To us, ‘data science’ is the business of algorithmically deriving insight from data. Now, this is not the same as AI, or artificial intelligence — the insights and data themselves are inherently not ‘intelligent,’” Hardoon said.

INDONESIA
For a fortnight before a policy announcement, Bank Indonesia’s statistics department scours social media, news sites and other content to monitor public perception and rate expectations. The growth in online shopping means the bank is also now receiving information from big players in the e-commerce market, said Yati Kurniati, who heads the department.

THAILAND
Tired of relying on existing data that shows Thailand having one of the lowest unemployment rates in the world even amid tepid economic growth, the central bank is building its own employment index based on data from online job-search portals and is creating a property indicator to give it a better sense of supply and demand
in the housing market.
“Existing indicators that we are familiar with may not be enough to answer the questions, not in time, and sometimes even lead to wrong answers,” said Jaturong
Jantarangs, an assistant governor at the Bank of Thailand.

PHILIPPINES
Bangko Sentral ng Pilipinas last month issued new regulations to boost information technology security in the local banking sector. Governor Nestor Espenilla had said in June that while there is a need to address threats brought about by social media, cloud computing, big data and AI, the real challenge is in determining how to strike a balance between encouraging the use of technology and ensuring security amid these innovations.

US
Earlier this year, Federal Reserve Chair Janet Yellen professed that officials at the US central bank are “excited about and want to find ways to use big data,” but she also made it clear that policy making continues to rely, and will for some time, on traditional data series.
Big data has been put to good use by Fed staff economists stu-dying specific issues, like post-
hurricane spending activity.

EURO AREA
The ECB has been exploring big data since 2013. Information on some 40,000 daily money market transactions will form the basis of an alternative reference rate as traditional benchmarks become unreliable. It has also bought a large set of prices from actual consumer purchases and is exploring ways to scrape the Internet to measure inflation in real time.

UK
In his first year as governor, Mark Carney created a data cou-ncil — now called the Data Governance Group — as well as a
data lab and an advanced analytics unit. Its leader, Paul Robinson,
reports to Andy Haldane, the Ba-nk of England’s chief economist.
It also contains the bank’s data
lab, and boasts physicists and
computer scientists.

SWEDEN
Researchers at Sveriges Riksbank showed this year that using data from online retailers could improve the precision of inflation forecasts by providing up-to-date information on goods with volatile prices such as fruit and vegetables.

RUSSIA
“I’d like to build a whole line of indexes using big data,” said Alexander Morozov, a former HSBC economist who’s headed the Bank of Russia’s research and forecasting department since 2015. So far he’s developed a gauge of economic activity by scouring a news site and believes the central bank can rely on big data to pry information that is even more forward-looking than that contained in purchasing managers’ indexes, which are usually published around the first of each month.

NORWAY
Researchers at Norges Bank fed 26 years of news from local business daily Dagens Naringsliv into a macroeconomic model to create an index of business cycles. The “ hypothesis is quite simple,” said Leif-Anders Thorsrud, a senior researcher who started the project.