The terms “Lucas critique” and “Goodhart law” have become standard warning signs for all macroeconomic modellers. As a result, the profession has started to prefer smaller-scale models with a sounder microeconomic background, built in recent decades usually along the lines of New Keynesian Economics. As the first generation of these new models became mature, though, the second generation started to be more detailed again. The recent third generation of models has added the aspect of stock-flow consistency, which has pushed the number of equations even further. The state-of-the-art forecasting models have consequently become quite big animals again, but their philosophical foundations remain very different from those of the 1950s to 1970s, as the third generation has extended the microeconomic foundations considerably. Secondly, the ever-changing world map in terms of monetary policy regimes has also modified the role of forecasting at central banks. In the past, most countries had pegged exchange rates against the major currencies. Under such a system, the role of forecasting is smaller than with the floating exchange rate regime and concentrates on balance of payments analysis and perhaps also monetary analysis. The countries with floating exchange rates, on the other hand, often experimented with money targeting, which pushed monetary analysis to the forefront. However, since the early 1990s the number of countries with floating exchange rates has increased dramatically, reflecting numerous currency crises and a growing consensus on the undesirability of conventional currency pegs. Moreover, the inflation targeting regime has gained much more weight among the group of countries with floating rates.

Ravi Menon: Remarks on the MAS Annual Report 2022/2023 Remarks by Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore, at the MAS Annual Report 2022/2023 Media Conference, Singapore, 5 July 2023. *** Good morning and thank you for joining us today for the release of the MAS Annual Report and the MAS Sustainability Report for FY 2022/23. I will focus my remarks this morning on four issues: What is the balance of risk between inflation and growth? Why did MAS record a financial loss and is it cause for concern? How is MAS harnessing the benefits and addressing the risks of wealth inflows? How is MAS safeguarding the Official Foreign Reserves against climate risk? WHAT IS THE BALANCE OF RISK BETWEEN INFLATION AND GROWTH? Let me begin with the balance of risk between inflation and growth. A material slowdown in global economic activity in the later part of this year looks increasingly likely. Global growth held up strongly in Q1 2023, on the back of strong consumer demand for services, supportive labour market conditions, and China's reopening. But the restraining effects of monetary policy tightening is expected to bear down more heavily on consumer demand in the US and Eurozone. In China, the boost from reopening is expected to ease over the next few quarters as household spending normalises and sluggish external demand weighs on exports. Inflation appears to have peaked globally though there is uncertainty over how quickly inflation will return to targets.