February 16, 2023 • 19 mins
November 2022 | Research – it’s part of our DNA. It is an essential part of who we are and what we do. It informs the monetary policy process, deepens our understanding of the operation of financial markets, helps us understand the life of banknotes and more. But more than that, the way we do research matters. Join Head of Communications Judy Hitchen in learning more about why research is so important, the value of collaboration and our current research priorities.
Head of Research John Simon sums it up when he says: ‘What is the Chinese proverb or curse? ‘May you live in interesting times.’ These are really interesting times … and that means there are just so many questions that we don’t have the answers to. So I think this is a really exciting time if you happen to be a researcher because there’s no shortage of questions, what we need is more people doing that research to give us the answers.’
Guests
Assistant Governor (Economic) Luci Ellis
Head of Economic Research John Simon
Senior Research Manager Anthony Brassil
Senior Analyst Nalini Agarwal
Additional resources
Collaboration and Engagement | RBA
Transcript
Transcript of the Podcast - Why Research Matters (rba.gov.au)
First published: 29 November 2022
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:04):
research runs deep into the heart of any central bank.
It is an essential part of who we are and what we do.
It informs the monetary policy process,
deepens our understanding of the operation of financial markets,
helps us understand the life of banknotes and more but more than that the way we do research matters.
Our people are encouraged to publish the findings of their research in research discussion papers on a wide range of issues to stimulate comment and discussion.
(00:30):
We also run annual workshops and conferences,
have a program of internal seminars and host visitors to foster interaction between academics,
central bankers and other economic practitioners on topical policy issues.
In this podcast,
we're going to find out more about why research is so important,
what our researchers are focusing on and how they go about it.
(00:53):
Our guest today are lucy ellis who is the assistant governor responsible for economics here at the bank.
Head of Economic research,
john Simon senior research manager,
Anthony brazel and senior analyst Malini Agarwal to set the scene.
I have a question for,
you know Lenny,
why pursue economic research at a central bank?
It's a big question.
(01:14):
But taking a step back,
what drew you to do research at the reserve Bank?
I think it's the opportunity to do policy relevant research.
So we use a lot of novel and exciting data and we use cutting edge techniques to answer really important questions.
So why does the economy function this way and why does the monetary policy impact businesses and households.
(01:36):
All of this is exciting to me because I get to think about these questions and these ideas in a really deep and meaningful way.
Um I combine data and theory and allows us to contribute to the knowledge and generate new ideas.
Thanks Nalini,
I wanted to build on this and dig under the hood to really look at this from first principles so lucy why is research such a fundamental activity at a central bank because neither we nor anybody else knows all there is to know about how the economy works.
(02:06):
There's always something new to learn and particularly so in recent times where we've been faced with a 100 year event such as the pandemic where we've been faced with a policy response that had never been tried before such as lockdowns.
But even outside of those extraordinary times there is always evolution in the way the economy works,
(02:29):
there's always structural change and so we need to keep learning about how the economy works and in order to do that some of the things we do are more shorter term analysis but some some of the ways we need to learn about the economy take in depth long term inquiry and they take in depth long term acquisition of new analytical techniques.
(02:54):
Some of that work can be done as part of the more regular day to day,
monthly cycle of briefing the board and engaging with the public but often it needs clear space to complete that longer term deep work.
What to you makes for good research.
I'm looking for research that's salient to our mandate.
(03:16):
I'm looking for research that is easy to apply and explain.
And I'm looking for something that tells me something we didn't already know.
Uh and that's where the ability to bring in different techniques and more in depth work can be particularly valuable,
(03:36):
so lucy perhaps you could tell us exactly how research helps support the bank's mandate.
It happens in a number of different ways.
But in particular,
I think deeper research helps us derive a better understanding of how our tools work,
various policy tools and how those tools affect the economy and how they affect particular sectors.
(03:56):
It gives us a clear space to do analysis of how diff approaches to policy and different policy options might work.
This is particularly relevant also for our financial stability mandate and of course we have many other mandates to where the issue of banknotes and so some of the research we've published in recent years includes work on the lifecycle and longevity of banknotes,
(04:20):
and that's not something you can kind of whip up in a day or two.
You need to do a serious research project on it.
Another thing that's really important is to actually be able to keep tabs on what other researchers in our field are doing,
whether that's our colleagues in other central banks in international organizations or in academia.
(04:40):
And so it's really important for us to engage with and learn from those other researchers.
So clearly research is a really necessary part of the work of the central bank.
But I'd like to understand more about how the research happens,
john you head the department where much of this deep thinking occurs.
Could you perhaps explain more about what your team does from the outside?
(05:02):
You might think that all the research department does is published research papers,
but we're very much like an iceberg,
what you see on the surface,
it is only a small fraction of what we're actually doing.
So to give you some examples of the kind of stuff we do,
we organize an annual conference,
we host academic roundtables,
We have seminar series where we get presenters from outside to present to staff at the bank.
(05:28):
We also go out and present our work to universities and other forums.
We also do a lot of work internally,
which is where we're writing notes that don't necessarily get published and we're also providing comments on the work of others within the bank.
We are also trying to provide a model for how you can do research well,
(05:49):
in order to promote that culture of analytical excellence within the reserve bank.
So for example,
we can provide commentary on the way people do their analysis.
We also try to live that and demonstrate that ourselves and perhaps even more importantly,
what we're really trying to do is get a diversity of ideas flowing through the bank.
(06:10):
So we organize conferences and seminars as a way of getting people from outside the institution to come in and share those ideas and hopefully that can lead to an ongoing,
really rich conversation about the ideas of what's going on in the world and the way different people are approaching that building on this a bit Anthony.
What would you say is a typical day for a research economist?
(06:32):
I guess there really is no typical day for a research economist at the bank.
You know,
working on our long term research projects is obviously a key output for a research economist and takes up most of our time.
But they're often days or even weeks when all our time is taken up by other priorities.
So we host seminars where we get academics to come and present their cutting edge research to us and we attend academic conferences all over the world to both present our own research and receive external feedback and to learn from the research of others.
(07:07):
And we then use what we've learned to help the work of others inside the bank.
So we hold work in progress seminars and brainstorming sessions to ensure that people across the bank are using the most appropriate methods and data to answer all of our important policy questions.
Um and and it's expected that all stuff within the bank kind of circulate their work to others for comment before it's all finalized.
(07:30):
Actually,
a big part of my job in particular is just ensuring that we're answering the right questions in the,
in the right way,
which means I'm regularly in contact with the human resources and information technology areas of the bank to ensure that we have the we have the right people and the right technology to keep up with the cutting edge of research.
So it's not just about monetary policy though,
(07:51):
is it?
It's actually broader than that.
Is that the case you might think?
Yes,
we're at the central bank.
All we're doing is monetary policy.
But I guess there's two aspects to that one.
We're a public institution and so we have a responsibility to contribute to kind of general knowledge about the Australian economy.
But the other aspect is that monetary policy in order to do that well,
(08:13):
you really do need to understand almost everything that's going on.
So for example,
there are interactions between monetary policy and fiscal policy.
So when we raise interest rates,
this has consequences for interest rates on government bonds,
government spending and monitoring fiscal policy very much are working together and so we need to be able to anticipate that and understand that we're not operating in a vacuum.
(08:38):
You actually have a number of research priorities and obviously monetary policy is one of them,
but perhaps if you could talk to some of the others.
So at these times post Covid,
one of them is monitoring the effects of Covid on the economy.
Now.
This is more than just looking at what's happening today.
Looking at what's going on with shutdowns or growth today.
It's very much thinking about what are the longer term consequences of Covid when you have an event like the covid pandemic,
(09:05):
it's inevitable that many things are going to change as a consequence.
I mean we're doing things today that we never thought we'd be doing.
Perhaps 23 years ago.
You know,
zoom conversations meetings are all over the place and people were thinking it would take 10 years before video conferencing took off.
It took off in two weeks perhaps and the consequences of that for productivity,
(09:29):
for remote working were really large.
And so that is going to have an ongoing effect on perhaps the way we do work.
What people's preferences are over where they live.
So we see changes in the housing market as lots of people move to regional areas.
We see some people managing to work from anywhere in organizations,
(09:49):
but we also have other effects which is for example,
the experience of lockdowns affected what people could do.
They couldn't consume services anymore.
They couldn't go out to restaurants,
they were buying all their food in That could well have long term effects on what people consume and how they do it.
(10:09):
And I think one of the other priorities is the household sector and financial stability.
A topic of ongoing interest in Australia to talk to that one.
Obviously an Australian obsession is housing and house prices.
And indeed,
the commentary about monetary policy changes is always about,
you know,
what's going to happen to mortgage payments,
what's happening to house prices.
(10:30):
And so it's very important that we understand that,
but I want to emphasize that that's not the only channel through which we have an effect on the economy.
Obviously,
we need to understand that and it's a very important effect.
And one of the reasons for that is it has consequences for financial stability.
So this isn't really what's happening to the average,
This is really what's happening to the tails,
(10:52):
what's happening to people who might have borrowed just a little bit too much rather than what's happening to the average.
Coming back to Anthony Angelini to hear about some of the specific research projects that are happening in some detail.
I understand that you recently completed some extensive research that focused on adding a banking sector to martin the RBA's macro economic model.
(11:14):
I believe,
effectively it adds a feedback loop between the banking sector and the rest of the economy to see how they influence each other during a downturn.
Why did you feel in particular that this research was important at a very high level.
Um,
I guess the lack of financial sectors in macroeconomic models prior to the global financial crisis was actually kind of a source of embarrassment for the profession.
(11:37):
Um,
I guess on one hand,
it's kind of understandable most of our macroeconomic models are designed to understand what happens in the economy most of the time.
And thankfully financial crisis just don't happen that often.
But again how costly they are when they do happen.
I think the profession realized it is worth devoting more resources than we historically have to kind of understanding how these crises manifest and how both monetary and more recently macroprudential policies can reduce the frequency of them happening and the damage that they do when they do happen.
(12:12):
And yeah and that's exactly what this research project tries to do.
So the existing martin model already has a rich understanding of how the economy develops over time in response to all the unexpected stuff that happens in the economy.
And so what we really wanted to do was just to understand how much the Australian banking sector might amplify sufficiently large shocks to the economy by reducing the supply of credit to the economy precisely when the economy is already in a really bad state.
(12:41):
And Nalini you're currently working on some rather topical research looking at wages micro data from the A.
T.
O.
Single touch payroll.
Can you tell us more about this research?
Yeah absolutely.
So an important new source of data that we have now access to a single touch payroll or STP.
So what S.
D.
P.
Is it's a new reporting system in Australia that captures data on pay slips of virtually every employee in Australia.
(13:04):
So whenever a firm runs its payroll um The data on how much each of its staff were paid including wages,
overtime bonuses,
superannuation are all sent to the Australian taxation office.
Um the ATO.
They collect this data but we get access to it in a de identified and confidential way.
And we access it remotely through the Australian Bureau of Statistics.
(13:24):
And just to give you an idea of how large this dataset is,
we get access to about more than one billion data points since 2020.
And what's really epic about the data sources that it's available in close to real time.
So using this new data source,
my colleague James Bishop and I have developed an experimental measure of labor cost growth.
But what we refer to as as compositionally adjusted average earnings from SdP,
(13:49):
which is actually quite a mouthful but very useful by the sounds of it.
So what are we actually hoping to learn from this research?
So as the name suggests,
what James and I are hoping to learn is how average earnings in Australia have tracked over time in a timely measure.
So this reflects our broader research priority of monitoring the effects of COVID-19 on the economy.
(14:11):
What have you actually discovered?
Based on the research?
It's experimental but what we've tentatively concluded is that average earnings per job is rising by around or slightly above pre pandemic rates.
Um And we're hoping that it provides a reasonable signal that allows us to,
you know,
add to the suit of resources used by the bank to assess labor cost pressures in the economy.
(14:35):
The research department provides a very important function in supporting the rest of the bank,
john could you perhaps talk to that point a bit?
Yeah,
I suppose this is going back to the iceberg analogy.
A lot of what we do is even more than the direct stuff we do that is doing research or helping people with their notes,
(14:55):
providing commentary on their research is as much about the culture and the way we do things.
Because I think when you're doing research,
it's very hard to know how I got this right.
But you can have confidence if you've gone through the right process.
If you've established a robust process whereby you make sure you get comments on it,
you expose it to scrutiny,
(15:16):
you engage in discussions with people outside and inside the bank.
That way you make sure that you've got,
you know,
the widest range of views.
Um you can find flaws in your initial draft research and you can make it better.
And a lot of what we're trying to do is establish a pattern for how you do research so that you can have confidence in the results and this is really part of the bank's core values of intelligence inquiry and analytical excellence is the way we do.
(15:48):
It is just as important as what we're doing and that's internally working with the rest of the bank,
but also collaboration outside of the bank is important for research.
Can you talk to that?
Absolutely.
Um I think we are a conduit or we are a channel between the academic community,
mostly outside the bank and the researchers inside the bank.
(16:13):
And if we were just talking within the bank,
there's a danger that we would be talking to ourselves and there's a danger that you might end up with a bit of groupthink.
But by going out and talking to the wider academic community,
we can get those perspectives and make sure that there isn't something that we have missed by getting those diversity of views.
(16:35):
It also means that we can keep up with what's happening on in the general economics community,
because there's only so many papers you can read,
and if you're talking to other people,
they can give you a summary,
they can expose you to those ideas work wouldn't happen without collaboration.
Um,
as I mentioned before,
we thankfully hadn't had a banking crisis in Australia for decades,
(16:58):
because they thankfully don't happen that often,
but with no recent experience on which to base our understanding,
um we kind of had to rely on the work of others and the knowledge of others to to actually try and understand how the banking system might amplify downturns in Australia.
And so our approach is actually based off the banking sector models that are constructed by our domestic markets department and financial stability department and they use things like liaison information and data collected from APRA which is collected from the banks themselves to construct the best guess of how large downturns could lead to loan losses and how banks might respond to that.
(17:40):
I'm also involved in another project to understand how people form expectations for the future and what this means for how we should set monetary policy.
Um And for that project,
I and another R.
B.
A colleague have teamed up with chris Gibbs,
who's an expert in understanding expectation formation in macroeconomic models um and is a senior lecturer at the University of Sydney.
(18:04):
So yeah,
I guess collaborations pivotal to ensuring we utilize both all the expertise we have across the bank and the expertise of our colleagues in academia.
But yeah,
I guess I guess this kind of direct collaboration is really only the the tip of the collaboration iceberg,
so to speak.
Um Is the whole the whole reason we present our work at universities and conferences,
(18:27):
why we circulate our work for external comment for becomes an RdP and why we publish our code with our DPS is so people who aren't directly part of the work can contest our ideas.
Um So for example,
with our project with the martin model,
we really want people to run the martin model with our banking sector in it and we want them to see how it works.
(18:50):
We want them to run their own scenarios.
We want them to test their own theories and you know,
if anything we haven't done doesn't pass muster.
We want them to let us know.
So that sounds very interesting and exciting time to be doing research.
Would that be the case?
Yeah,
I mean,
I think it's what is that the chinese proverb or curse may you live in interesting times.
These are really interesting times and I think you can kind of get a bit stale when everything's moving along smoothly and there's no real shocks happening to the economy where and what we've got now is nothing like that.
(19:26):
And that means there are just so many questions that we don't have the answers to.
So I think this is a really exciting time if you happen to be a researcher because there's no shortage of questions what we need is more people doing that research to give us the answers.
So there we have it,
it's pretty clear why research is not just something we do as a central bank,
but a core part of who we are as an organization.
(19:48):
It supports all facets of the bank's mandate and our responsibility to support the public.
Good,
research runs deep into the heart of any central bank.
It is an essential part of who we are and what we do.
It informs the monetary policy process,
deepens our understanding of the operation of financial markets,
helps us understand the life of banknotes and more but more than that the way we do research matters.
Our people are encouraged to publish the findings of their research in research discussion papers on a wide range of issues to stimulate comment and discussion.
(00:30):
We also run annual workshops and conferences,
have a program of internal seminars and host visitors to foster interaction between academics,
central bankers and other economic practitioners on topical policy issues.
In this podcast,
we're going to find out more about why research is so important,
what our researchers are focusing on and how they go about it.
(00:53):
Our guest today are lucy ellis who is the assistant governor responsible for economics here at the bank.
Head of Economic research,
john Simon senior research manager,
Anthony brazel and senior analyst Malini Agarwal to set the scene.
I have a question for,
you know Lenny,
why pursue economic research at a central bank?
It's a big question.
(01:14):
But taking a step back,
what drew you to do research at the reserve Bank?
I think it's the opportunity to do policy relevant research.
So we use a lot of novel and exciting data and we use cutting edge techniques to answer really important questions.
So why does the economy function this way and why does the monetary policy impact businesses and households.
(01:36):
All of this is exciting to me because I get to think about these questions and these ideas in a really deep and meaningful way.
Um I combine data and theory and allows us to contribute to the knowledge and generate new ideas.
Thanks Nalini,
I wanted to build on this and dig under the hood to really look at this from first principles so lucy why is research such a fundamental activity at a central bank because neither we nor anybody else knows all there is to know about how the economy works.
(02:06):
There's always something new to learn and particularly so in recent times where we've been faced with a 100 year event such as the pandemic where we've been faced with a policy response that had never been tried before such as lockdowns.
But even outside of those extraordinary times there is always evolution in the way the economy works,
(02:29):
there's always structural change and so we need to keep learning about how the economy works and in order to do that some of the things we do are more shorter term analysis but some some of the ways we need to learn about the economy take in depth long term inquiry and they take in depth long term acquisition of new analytical techniques.
(02:54):
Some of that work can be done as part of the more regular day to day,
monthly cycle of briefing the board and engaging with the public but often it needs clear space to complete that longer term deep work.
What to you makes for good research.
I'm looking for research that's salient to our mandate.
(03:16):
I'm looking for research that is easy to apply and explain.
And I'm looking for something that tells me something we didn't already know.
Uh and that's where the ability to bring in different techniques and more in depth work can be particularly valuable,
(03:36):
so lucy perhaps you could tell us exactly how research helps support the bank's mandate.
It happens in a number of different ways.
But in particular,
I think deeper research helps us derive a better understanding of how our tools work,
various policy tools and how those tools affect the economy and how they affect particular sectors.
(03:56):
It gives us a clear space to do analysis of how diff approaches to policy and different policy options might work.
This is particularly relevant also for our financial stability mandate and of course we have many other mandates to where the issue of banknotes and so some of the research we've published in recent years includes work on the lifecycle and longevity of banknotes,
(04:20):
and that's not something you can kind of whip up in a day or two.
You need to do a serious research project on it.
Another thing that's really important is to actually be able to keep tabs on what other researchers in our field are doing,
whether that's our colleagues in other central banks in international organizations or in academia.
(04:40):
And so it's really important for us to engage with and learn from those other researchers.
So clearly research is a really necessary part of the work of the central bank.
But I'd like to understand more about how the research happens,
john you head the department where much of this deep thinking occurs.
Could you perhaps explain more about what your team does from the outside?
(05:02):
You might think that all the research department does is published research papers,
but we're very much like an iceberg,
what you see on the surface,
it is only a small fraction of what we're actually doing.
So to give you some examples of the kind of stuff we do,
we organize an annual conference,
we host academic roundtables,
We have seminar series where we get presenters from outside to present to staff at the bank.
(05:28):
We also go out and present our work to universities and other forums.
We also do a lot of work internally,
which is where we're writing notes that don't necessarily get published and we're also providing comments on the work of others within the bank.
We are also trying to provide a model for how you can do research well,
(05:49):
in order to promote that culture of analytical excellence within the reserve bank.
So for example,
we can provide commentary on the way people do their analysis.
We also try to live that and demonstrate that ourselves and perhaps even more importantly,
what we're really trying to do is get a diversity of ideas flowing through the bank.
(06:10):
So we organize conferences and seminars as a way of getting people from outside the institution to come in and share those ideas and hopefully that can lead to an ongoing,
really rich conversation about the ideas of what's going on in the world and the way different people are approaching that building on this a bit Anthony.
What would you say is a typical day for a research economist?
(06:32):
I guess there really is no typical day for a research economist at the bank.
You know,
working on our long term research projects is obviously a key output for a research economist and takes up most of our time.
But they're often days or even weeks when all our time is taken up by other priorities.
So we host seminars where we get academics to come and present their cutting edge research to us and we attend academic conferences all over the world to both present our own research and receive external feedback and to learn from the research of others.
(07:07):
And we then use what we've learned to help the work of others inside the bank.
So we hold work in progress seminars and brainstorming sessions to ensure that people across the bank are using the most appropriate methods and data to answer all of our important policy questions.
Um and and it's expected that all stuff within the bank kind of circulate their work to others for comment before it's all finalized.
(07:30):
Actually,
a big part of my job in particular is just ensuring that we're answering the right questions in the,
in the right way,
which means I'm regularly in contact with the human resources and information technology areas of the bank to ensure that we have the we have the right people and the right technology to keep up with the cutting edge of research.
So it's not just about monetary policy though,
(07:51):
is it?
It's actually broader than that.
Is that the case you might think?
Yes,
we're at the central bank.
All we're doing is monetary policy.
But I guess there's two aspects to that one.
We're a public institution and so we have a responsibility to contribute to kind of general knowledge about the Australian economy.
But the other aspect is that monetary policy in order to do that well,
(08:13):
you really do need to understand almost everything that's going on.
So for example,
there are interactions between monetary policy and fiscal policy.
So when we raise interest rates,
this has consequences for interest rates on government bonds,
government spending and monitoring fiscal policy very much are working together and so we need to be able to anticipate that and understand that we're not operating in a vacuum.
(08:38):
You actually have a number of research priorities and obviously monetary policy is one of them,
but perhaps if you could talk to some of the others.
So at these times post Covid,
one of them is monitoring the effects of Covid on the economy.
Now.
This is more than just looking at what's happening today.
Looking at what's going on with shutdowns or growth today.
It's very much thinking about what are the longer term consequences of Covid when you have an event like the covid pandemic,
(09:05):
it's inevitable that many things are going to change as a consequence.
I mean we're doing things today that we never thought we'd be doing.
Perhaps 23 years ago.
You know,
zoom conversations meetings are all over the place and people were thinking it would take 10 years before video conferencing took off.
It took off in two weeks perhaps and the consequences of that for productivity,
(09:29):
for remote working were really large.
And so that is going to have an ongoing effect on perhaps the way we do work.
What people's preferences are over where they live.
So we see changes in the housing market as lots of people move to regional areas.
We see some people managing to work from anywhere in organizations,
(09:49):
but we also have other effects which is for example,
the experience of lockdowns affected what people could do.
They couldn't consume services anymore.
They couldn't go out to restaurants,
they were buying all their food in That could well have long term effects on what people consume and how they do it.
(10:09):
And I think one of the other priorities is the household sector and financial stability.
A topic of ongoing interest in Australia to talk to that one.
Obviously an Australian obsession is housing and house prices.
And indeed,
the commentary about monetary policy changes is always about,
you know,
what's going to happen to mortgage payments,
what's happening to house prices.
(10:30):
And so it's very important that we understand that,
but I want to emphasize that that's not the only channel through which we have an effect on the economy.
Obviously,
we need to understand that and it's a very important effect.
And one of the reasons for that is it has consequences for financial stability.
So this isn't really what's happening to the average,
This is really what's happening to the tails,
(10:52):
what's happening to people who might have borrowed just a little bit too much rather than what's happening to the average.
Coming back to Anthony Angelini to hear about some of the specific research projects that are happening in some detail.
I understand that you recently completed some extensive research that focused on adding a banking sector to martin the RBA's macro economic model.
(11:14):
I believe,
effectively it adds a feedback loop between the banking sector and the rest of the economy to see how they influence each other during a downturn.
Why did you feel in particular that this research was important at a very high level.
Um,
I guess the lack of financial sectors in macroeconomic models prior to the global financial crisis was actually kind of a source of embarrassment for the profession.
(11:37):
Um,
I guess on one hand,
it's kind of understandable most of our macroeconomic models are designed to understand what happens in the economy most of the time.
And thankfully financial crisis just don't happen that often.
But again how costly they are when they do happen.
I think the profession realized it is worth devoting more resources than we historically have to kind of understanding how these crises manifest and how both monetary and more recently macroprudential policies can reduce the frequency of them happening and the damage that they do when they do happen.
(12:12):
And yeah and that's exactly what this research project tries to do.
So the existing martin model already has a rich understanding of how the economy develops over time in response to all the unexpected stuff that happens in the economy.
And so what we really wanted to do was just to understand how much the Australian banking sector might amplify sufficiently large shocks to the economy by reducing the supply of credit to the economy precisely when the economy is already in a really bad state.
(12:41):
And Nalini you're currently working on some rather topical research looking at wages micro data from the A.
T.
O.
Single touch payroll.
Can you tell us more about this research?
Yeah absolutely.
So an important new source of data that we have now access to a single touch payroll or STP.
So what S.
D.
P.
Is it's a new reporting system in Australia that captures data on pay slips of virtually every employee in Australia.
(13:04):
So whenever a firm runs its payroll um The data on how much each of its staff were paid including wages,
overtime bonuses,
superannuation are all sent to the Australian taxation office.
Um the ATO.
They collect this data but we get access to it in a de identified and confidential way.
And we access it remotely through the Australian Bureau of Statistics.
(13:24):
And just to give you an idea of how large this dataset is,
we get access to about more than one billion data points since 2020.
And what's really epic about the data sources that it's available in close to real time.
So using this new data source,
my colleague James Bishop and I have developed an experimental measure of labor cost growth.
But what we refer to as as compositionally adjusted average earnings from SdP,
(13:49):
which is actually quite a mouthful but very useful by the sounds of it.
So what are we actually hoping to learn from this research?
So as the name suggests,
what James and I are hoping to learn is how average earnings in Australia have tracked over time in a timely measure.
So this reflects our broader research priority of monitoring the effects of COVID-19 on the economy.
(14:11):
What have you actually discovered?
Based on the research?
It's experimental but what we've tentatively concluded is that average earnings per job is rising by around or slightly above pre pandemic rates.
Um And we're hoping that it provides a reasonable signal that allows us to,
you know,
add to the suit of resources used by the bank to assess labor cost pressures in the economy.
(14:35):
The research department provides a very important function in supporting the rest of the bank,
john could you perhaps talk to that point a bit?
Yeah,
I suppose this is going back to the iceberg analogy.
A lot of what we do is even more than the direct stuff we do that is doing research or helping people with their notes,
(14:55):
providing commentary on their research is as much about the culture and the way we do things.
Because I think when you're doing research,
it's very hard to know how I got this right.
But you can have confidence if you've gone through the right process.
If you've established a robust process whereby you make sure you get comments on it,
you expose it to scrutiny,
(15:16):
you engage in discussions with people outside and inside the bank.
That way you make sure that you've got,
you know,
the widest range of views.
Um you can find flaws in your initial draft research and you can make it better.
And a lot of what we're trying to do is establish a pattern for how you do research so that you can have confidence in the results and this is really part of the bank's core values of intelligence inquiry and analytical excellence is the way we do.
(15:48):
It is just as important as what we're doing and that's internally working with the rest of the bank,
but also collaboration outside of the bank is important for research.
Can you talk to that?
Absolutely.
Um I think we are a conduit or we are a channel between the academic community,
mostly outside the bank and the researchers inside the bank.
(16:13):
And if we were just talking within the bank,
there's a danger that we would be talking to ourselves and there's a danger that you might end up with a bit of groupthink.
But by going out and talking to the wider academic community,
we can get those perspectives and make sure that there isn't something that we have missed by getting those diversity of views.
(16:35):
It also means that we can keep up with what's happening on in the general economics community,
because there's only so many papers you can read,
and if you're talking to other people,
they can give you a summary,
they can expose you to those ideas work wouldn't happen without collaboration.
Um,
as I mentioned before,
we thankfully hadn't had a banking crisis in Australia for decades,
(16:58):
because they thankfully don't happen that often,
but with no recent experience on which to base our understanding,
um we kind of had to rely on the work of others and the knowledge of others to to actually try and understand how the banking system might amplify downturns in Australia.
And so our approach is actually based off the banking sector models that are constructed by our domestic markets department and financial stability department and they use things like liaison information and data collected from APRA which is collected from the banks themselves to construct the best guess of how large downturns could lead to loan losses and how banks might respond to that.
(17:40):
I'm also involved in another project to understand how people form expectations for the future and what this means for how we should set monetary policy.
Um And for that project,
I and another R.
B.
A colleague have teamed up with chris Gibbs,
who's an expert in understanding expectation formation in macroeconomic models um and is a senior lecturer at the University of Sydney.
(18:04):
So yeah,
I guess collaborations pivotal to ensuring we utilize both all the expertise we have across the bank and the expertise of our colleagues in academia.
But yeah,
I guess I guess this kind of direct collaboration is really only the the tip of the collaboration iceberg,
so to speak.
Um Is the whole the whole reason we present our work at universities and conferences,
(18:27):
why we circulate our work for external comment for becomes an RdP and why we publish our code with our DPS is so people who aren't directly part of the work can contest our ideas.
Um So for example,
with our project with the martin model,
we really want people to run the martin model with our banking sector in it and we want them to see how it works.
(18:50):
We want them to run their own scenarios.
We want them to test their own theories and you know,
if anything we haven't done doesn't pass muster.
We want them to let us know.
So that sounds very interesting and exciting time to be doing research.
Would that be the case?
Yeah,
I mean,
I think it's what is that the chinese proverb or curse may you live in interesting times.
These are really interesting times and I think you can kind of get a bit stale when everything's moving along smoothly and there's no real shocks happening to the economy where and what we've got now is nothing like that.
(19:26):
And that means there are just so many questions that we don't have the answers to.
So I think this is a really exciting time if you happen to be a researcher because there's no shortage of questions what we need is more people doing that research to give us the answers.
So there we have it,
it's pretty clear why research is not just something we do as a central bank,
but a core part of who we are as an organization.
(19:48):
It supports all facets of the bank's mandate and our responsibility to support the public.
Good,
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