Using bank supervisory data to improve macroeconomic forecasts

Locating the function of bank supervision in the central bank has been a co ntentious issue, both domestically and internationally. Most discussions of the role of bank supervision in central banking have focused on crisis man agement and the responsibilities of the central bank as a lender of last re sort. However, recent research by the authors has shown that confidential s upervisory information garnered through bank examinations potentially can i mprove the forecasts of key macroeconomic variables and thus the conduct of monetary policy. Forecasting macroeconomic variables is essential to the c onduct of monetary policy, since the long lags in the effect of monetary po licy ensure that changes in monetary policy today alter the economy only in the future. This article explores further the robustness of the results reported earlie r. It examines the pattern of the forecast errors of the individual private forecasters studied, and confirms the earlier results. Thus, the article c oncludes that an important reason for central banks to have access to confi dential supervisory information, and possibly to participate in its collect ion, is that such information can improve macroeconomic forecasts and in th is way improve monetary policy decision-making.