Prudent Risk Management Approach to Monetary Policy Launch of FPAS MARK II
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There is already a multitude of public policy institutes. The BPP is trying to stand out from the rest by framing our mission as a project rather than an institute. At BPP, we try to pursue specific goals that can be achieved within a reasonable time frame. Our main mission is to improve the effectiveness of public policy via three avenues: raising public economic literacy, improving analytical frameworks in policymaking institutions and enhancing the communication of policy to the public.
Mission
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Advancing the frontiers of monetary policy. Our philosophy highlights the need for assertive policies and maximum transparency.
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Three C Approach: There is a need for public policy to be Comprehensive, Consistent and Coordinated.
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Develop state-of-the-art frameworks for monetary, fiscal and macroprudential policies.
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Economic literacy rate: Effective policy is partially dependent on credibility of the institution which is conditional on an educated populace.
Douglas Laxton created Saddle Point Research and The Better Policy Project in Portugal after retiring from International Monetary Fund where he worked as a division chief for many years.
Doug graduated from the University of Western Ontario in 1981 and subsequently joined the Bank of Canada, where he worked until 1993. At the Bank of Canada, he was responsible for developing an analytical framework to support flexible inflation targeting, which became and remains the gold standard for central bank monetary policy frameworks.
Doug developed the first generation of Forecasting and Policy Analysis Systems (FPAS Mark I), which spread throughout the world of central banking. More recently, he has developed the second generation of Forecasting and Policy Analysis Systems (FPAS Mark II) along with colleagues at the Central Bank of Armenia. These advancements are documented in a book titled "The Prudent Risk Management Approach to Monetary Policy," available on his website.
In 1993, Doug moved to the research department at the IMF, where he developed several multicountry models. These included MULTIMOD, the Global Fiscal Model, the Global Integrated Monetary Fiscal Model, the Global Economy Model, the Flexible System of Global Models, and the Global Projection Model. He retired from the IMF in 2018. He is currently developing open-source software and training economists to develop and use such models for implementing prudent risk management approaches to various types of policies.
He has published an extensive list of publications with over 11,000 citations on Google Scholar. After retiring from the IMF in 2018, he founded the Better Policy Project and the Global Forecasting School, institutions aimed at improving economic and financial literacy at all levels.
Doug has also developed solution methods for solving large nonlinear forward-looking models, which remain the state of the art in the field. One of his research interests is supporting three Cs policies—comprehensive, consistent, and coordinated—designed to avoid what Olivier Blanchard refers to as "dark corners."
These ideas can be applied to any type of policy, such as fiscal policies, macroprudential policies, structural policies, and income and wealth distribution policies. Doug developed Forecasting and Policy Analysis Systems (FPAS) for monetary policy that evolved three essential ingredients: understanding where the economy is today, identifying the underlying forces driving the economy, and determining what the central bank needs to do with its instruments to achieve its objectives.
“We always plan too much and always think too little. We resent a call to thinking and hate unfamiliar argument that does not tally with what we already believe or would like to believe.”