cross the boundaries into other fields. we noted for instance in the monetary policy committee statement our concerns about the debt crises in advanced economies and considered in our discussions the possibilities of how this crisis might be resolved. this general increase in uncertainty has become a characteristic of the post - recession world, and one that appears especially hard to cast off. uncertainty demands a greater application of judgement across a broader range of perspectives than in times when variables move in clear directions and risks are low. 3. conclusion these thoughts prompt us to recognise that flexibility is a key ingredient of useful macroeconomic forecasting exercises, even as flexibility may seem to violate the very idea of a model. this tension is in fact quite important. the inflexibility of a model ’ s fixed relationships help us to assess whether today ’ s actual outcomes will continue in the future or adjust in line with the historical relationships reflected in the model. as real world outcomes change, we in turn ask ourselves what is wrong with our model relationships or what other conditions have changed to generate outcomes beyond what the model suggests. in short, the framework used to produce forecasts must be dynamic and able to change should circumstances require. one area for future work for us in the reserve bank is to incorporate the lessons of the financial crisis and recession into how we use our macro econometric and other models. the financial crisis that has occurred was so unexpected that very few, if any, macroeconometric models captured the inter - linkages between the real and the financial spheres. beyond interest rates, macro econometric models generally do not include financial transmission mechanisms. clearly this needs to change, but we also need to recognise that even much more extensive coverage will not compensate for intensive regulatory focus on financial and asset markets and the balance sheets of institutions operating in them. and from a policy - making perspective, we need to recognise that whatever progress we make in refining and calibrating our models, and achieving a higher level of their sophistication, they will never be able to absolve us from our responsibility to ultimately exercise judgement in reaching any policy decisions. thank you. bis central bankers ’ speeches

daniel mminele : forecasts, errors and what we can learn from them keynote address by mr daniel mminele, deputy governor of the south african reserve bank, at the reuters economist of the year award, johannesburg, 5 august 2011. * 1. * * introduction good morning ladies and gentlemen. thank you to thomson reuters for inviting me to address you this morning and to celebrate with you your achievements in economic forecasting. may i take this opportunity to extend my sincere congratulations to the winner of this prestigious award to be handed out this morning, and also to congratulate all of the nominees present here today. i was very tempted to start off my remarks this morning by telling a little joke about economists, but decided against it, as i have been warned that an economist is someone who did not have enough personality to become an accountant. i promise to keep my remarks this morning quite brief. 2. economic forecasting tested during the crisis thomas kida1 noted, “... the amount of knowledge we have in a certain area will not help us predict what will happen if the events are inherently unpredictable. ” the recent global financial crisis and recession has proved to be a humbling experience for economists, financial market participants, policy makers, regulators and many others that derive their income from economic forecasting, understanding the world economy and that which governs it. the crisis was not foreseen by most forecasters, although there was a minority who had been warning of a pending disaster for some time. the failure to forecast the “ great recession ” caused the queen of england herself to ask why it had not been foreseen. the turmoil of recent years has prompted critics to maintain that many economic models, and particularly macroeconomic models based on rational expectations, have been proven to be fundamentally flawed. much of the criticism directed towards forecasting and macroeconomic analysts has probably been misplaced. it has never been so much about economic models being wrong, as it is about understanding that all models are limited – by definition – and that models that limit certain types of relationships will eventually fail when those relationships in the real world change. in other words, the right criticism is to say that economic models constructed in particular ways need to be used and understood in similarly particular ways. a model that does not include household balance sheets and what drives them will not tell you if you will have a household debt crisis. by the same token, a model that says that future wage inflation will be a perfect function of expected