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The Swiss National Bank will make its quarterly monetary policy assessment on Thursday at 9.30am in Zurich (7.30am GMT).
The assessment comes after it emerged this week that the SNB had spent tens of billions of francs defending its euro peg over the course of May.
Expect a raft of questions on the political ramifications of the currency interventions Read more
The events of the past years have shown that economic and financial systems are prone to so-called “tail risks”, which are the sorts of events which the standard suite of models predict will happen very rarely indeed.
However, these tail-risk events, many of which have proven catastrophic for the global economy, have been uncannily common in recent years. Remember this famous line from David Viniar, Goldman’s CFO, in 2008:
“We were seeing things that were 25-standard-deviation events, several days in a row.”
25-standard-deviation events are exceptionally, exceptionally rare. And if you’re seeing them day after day, then chances are that your model might not correspond to reality — or even be a fair approximation of it.
In a fascinating paper out today, the Bank of England’s executive director Andy Haldane and Bank economist Benjamin Nelson argue that the models that banks and economists — among them the world’s monetary authorities were using — were indeed deeply flawed. Read more