simon m potter : models only get you so far remarks by mr simon m potter, executive vice president of the markets group of the federal reserve bank of new york, for the federal reserve banks of atlanta and new york's first annual joint research day on quantitative tools for monitoring macroeconomic and financial conditions, federal reserve bank of new york, new york city, 22 february 2019. * * * accompanying figures of the speech. as prepared for delivery it is a pleasure to deliver the lunchtime address during the atlanta and new york fed's first annual research day on quantitative tools for monitoring macroeconomic and financial conditions. 1 my remarks will focus on some insights from the book superforecasting by philip tetlock and dan gardner, with respect to how we interpret, use, and evaluate the results from our quantitative tools. 2 if you have read the book, subtitled " the art and science of prediction, " you will probably be aware that it is much less mathematical than the discussions we have been having today, but at the same time is more complex in how it articulates the role of forecasting in good decision - making. before i continue, i should note that these remarks reflect my own personal views and not necessarily those of the new york fed or the federal reserve system. the insights in superforecasting grew out of a forecasting tournament sponsored by the intelligence advanced research projects activity ( iarpa ). in the wake of the controversy surrounding the intelligence community's assessment of the existence of weapons of mass destruction in iraq, iarpa set out to enhance the accuracy, precision, and timeliness of intelligence forecasts. 3 the federal reserve and the broader economics and financial community have, of course, had to face similarly humbling shortcomings in our failure to forecast the great recession, despite the numerous signals that were available to forecasters and policymakers prior to 2008. on this issue, it is useful to recall a quote from an unusual source on economic forecasting, the queen of the united kingdom, who in november 2008 asked, " why did nobody notice it? " we should not treat this as a rhetorical question. what are some of the underlying reasons individuals and organizations fail to predict? what should we change about our mindsets and practices to improve the chances that we " notice it " next time, whenever that may be? at the new york fed, we've made investments in response to these critical questions. we've created

sector reform and improvements to disclosure. in each case, the reforms proposed were the result of careful analysis of the causes of the individual crises and a pragmatic assessment of what was needed to correct the conditions that had led to problems and to restore confidence. and in all cases, the strategy was continually modified and adjusted as conditions changed and as the principals responsible developed a better feel for what was working and what was not. conclusion recovery in the asian crisis countries took time, but it was stronger and more rapid than had been typical in other emerging market financial crises. barely 18 months after the crisis, for example, korean gdp had returned to pre - crisis levels, and this was true for all the asian crisis countries by 2003. growth has been relatively strong and stable since, though at a pace somewhat below the unsustainable rates of the decade prior to the crises. the countries directly affected by the crises a decade ago are fundamentally stronger. the balance sheet weaknesses have been transformed into strength. financial - sector reforms have been undertaken on a generally impressive scale. stronger legal and institutional frameworks have helped create an environment in which enterprise is thriving. macroeconomic policy has been reasonably prudent, and debt - to - gdp ratios are declining. exchange rate regimes have become more flexible. these changes have made these economies far more resilient than they were a decade ago. they are much less likely to face the type of crisis, the acute, self - reinforcing panic produced by the balance sheet problems of that era. is there more to be done? of course, but the challenge now is not so much the challenge of building stronger defenses against crisis, but rather the longer - term challenge of building a greater capacity to adapt to change in this increasingly integrated and rapidly evolving global economy. thank you.