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Symposium 2014

Proposal - Potential of Macroeconomic Surveillance

The Challenge

Recent debt, currency, or banking crises have proven how difficult it is to forecast such events, let alone to prevent them. For example, the fiscal surveillance mechanism in the Euro Area was unabl ...

Recent debt, currency, or banking crises have proven how difficult it is to forecast such events, let alone to prevent them. For example, the fiscal surveillance mechanism in the Euro Area was unable to prevent the Euro debt crisis, still faced by some EU countries. Consequently, the EU and the G-20 have called for strengthening macroeconomic surveillance by means of closely monitoring a broad set of potential imbalance indicators. However, many issues with regard to macroeconomic surveillance are still hotly debated among economists and policymakers. Analyzing the potential of macroeconomic surveillance and developing forward-looking proposals for its improvement, could certainly contribute to a more stable economic system in the future.

Macroeconomic and (to a certain extent Microeconomic Data Surveillance) is key to the overall strategy and execution for any Economic and Government policies.

And this is not only important for a country or sovereign but also to a Region. We have seen how this contagion effect can be borderless from the lesson learned in 1997/1998 Asia Financial Crisis and also the financial crisis in 2008/2009.

My key recommendation in this subject matter is not how important and why are the Macroeconomic Surveillance is important (it is given that it is extremely important).

BUT what are the best ways to execute these data in ensuring an effective implementation mechanism to a sovereign and/or regional policy.

To begin with I would like to break our conversation into 3 key areas as follows: -

  1. Key sovereign and regional economic fundamental targets.
  2. The balance between the sovereign targets and the key Financial Institutions Chief "Economist" reviews
  3. Effective polling mechanism to monitor and gauge the overall market and “people” sentiments. Implementing an effective Economic policy.

 

#1 Key sovereign and regional economic fundamental targets.

This is rather obvious and most sovereign would have key target economic data to achieve or “inspire” to achieve. And most often than not it is key to follow the fundamentals. E.g. Public Debt to GDP, inflation rate, policy rates etc.

These targets need to be look upon in

1. By the Sovereign and

2. The overall impact of the Region. Best example (maybe controversial) is like the Euro “Six pack” policy.

Regions like here in ASEAN should have some common ground in order to ensure not only stability but also the potential Growth that the region can tap further.

In addition, the two key TARGET and ensuring these are known clearly, in using these data for a government to implement a policy are:-
(1) The “Priorities” and the
(2) Time line of implementation.

 

#2. The balance between the sovereign targets and the key Financial Institutions chief "Economist" reviews.

This comes to my second point. Whilst, sovereign put in place its target and as highlighted earlier some form of firm Regional targets, policy makers do need to also have some form understanding of the market expectations before one policy is effectively in placed or executed.

My recommendation, one effective way to know what is the market “heartbeat” is to get a group of Financial Institutions top chief economist and to review their top 3 or 5 expectations and concerns.

A proper structured feedback mechanism and to certain extent debates I believe is required. These feedback mechanism or “polling” of a Group of Chief Economist can be either managed at the central bank level, or Ministry of Finance or Ministry in charge of Economic affairs/council.

This is to tap not only the market heartbeat but also to tap the best brains in the industry looking at various key and subset key macroeconomic data.

These conversations/feedback would need to include a various “stress test” scenarios.

 

#3 Effective polling mechanism to monitor and gauge the overall market and “people” sentiments. Implementing an effective Economic policy.

I believe implementation of any economic policy requires some balancing and timing. Some tough choices and management and leadership are required. However I feel sometimes, the extreme lack of empathy to what the market and the general public is quite apparent.

And this is where implementation of certain economic policies can be counter productive. One way to ensure decision and policy makers to manage this effectively is to have some form of effective “polling” system or mechanism. To gauge the type of different demographics of the views and feedback and proper sampling is important to gauge some form of market sentiments. These data may not 100% effective, but you may be surprised how some policy makers do not use or know how effective these tools are.

I would like to reiterate the point as to what are the best ways to use and execute these data in ensuring an effective implementation of a sovereign and/or regional policy. We could from time to time learn some of our past mistakes and challenges in facing these macro and micro economic cycles.

We sometimes can be surprised that the early warning signals are there. We just need to ensure right form of conversation and feedbacks are in place.

Thank you,

Muzaffar Hisham

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