ECB’s Lagarde: ‘Policies Have to Be Evidence-Based’

17 January 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Wednesday said policies must be based on data and evidence.

In a discussion themed ‘how to trust economics’ during the Annual Meeting of the World Economic Forum in Davos, Switzerland, Lagarde said, ‘Policies have to be evidence-based and this is what we have been arguing as a central bank, arguing that we have to be data-dependent, that we have to very attentive to developments.’

Economic models should not be set aside, she said, but needed improvement.

‘[W]e should not assume that they [models] will give us the answer, but they will be good in helping us reach the judgement that should be either contradicted or corroborated by data, by empirical data, by observation, by judgement.’

An example of that was the fact that non-linear developments and exogenous shocks that could impact the economy haven’t been in models, she said, which led to mistakes.

‘[T]he ECB was the first one to admit that it had got it wrong, in a way. [Those shocks were] not captured in our model and therefore, gave us projections and forecasts that were out of sync with what we should have actually explored’, she said.