CHRIS LOEWALD: Why quarterly projection model is just part of monetary policy moves
As it doesn’t feature all economic variables, the committee includes other models
The Reserve Bank monetary policy committee (MPC) uses many sources of information to reach decisions on interest rates. One of the more important inputs comes from the quarterly projection model (QPM), which generates the main economic forecasts published alongside each MPC statement. However, the importance of the model in the MPC process is often overstated. It’s a tool among other tools. Like all good models, the QPM supports human judgment, but is not a substitute for it.
The QPM was adopted as the MPC’s main forecast model in 2017, as part of a policy shift towards aiming for the midpoint of the 3%-6% target over time. The QPM could be set an explicit 4.5% target, as well as a repo rate projection for hitting it, which we started to publish. The QPM also offered other advantages, including simplicity. It doesn’t feature every economic variable we consider, and we rely on other models for other inputs...
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