ECONOMICS AND RESEARCH DEPARTMENT EVALUATION COMMISSION • Executive Summary: Conclusions and Main Recommendations
Executive Summary: Conclusions and Main Recommendations
Our overall assessment of the Economics and Research Department of Banco de Portugal (from
here on also DEE or Department) in the period under review (2000-2013) is positive.
DEE provides analysis, information and policy advice to the Governor especially in his role as
member of the ECB’s Governing Council. The Department actively participates in the work of the
Eurosystem and the European System of Central Banks. DEE’s contributions are highly appreciated by relevant stakeholders. Contributions to the ECB’s monetary policy strategy, including the
role of monetary aggregates and economic forecasts were particularly relevant.
DEE produces reference work. Its publications are considered by economists as important for
their analysis of the Portuguese economy. The Quarterly Economic Bulletin and the Annual Report were, in the period under review, the flagship publications. Gradually the Quarterly Economic Bulletin, which includes economic forecasts for the Portuguese economy, has become the
most important publication. It now enjoys significant prominence and is widely used by the
press, the general public, professional economists and researchers. That is clear from media
reporting, internet access, and opinions surveyed. In general the visibility of work on the Portuguese economy seems to be increasing. This trend benefited from a substantial rise in the importance of electronic access and the use of Banco de Portugal’s publications.
A good example is provided by The Portuguese Economy in the Context of Economic, Financial
and Monetary Integration released in 2009. This book brings together diversified contributions
from all strands in the Department. It effectively uses synergies between research and policy
work. It relies on research that was previously published in some of the best academic journals.
In 2013 the book was still accessed more than 20000 times on the website of the Banco de Portugal.
DEE produces analytical work up to the standards of leading peer-reviewed academic journals.
Between 2000 and 2013, DEE’s economists have published 172 papers in academic journals. 19
of these made it to top-ranked journals. Over time there is a clear upward trend. DEE is ranked
among the top economic research institutions in Portugal. It has established a reputation for
excellence in research inside the Eurosystem. The main fields of publication are unsurprisingly
monetary economics and macroeconomics. A strong strand in the Department makes use of
large micro datasets to investigate topics such as financial intermediation, labor markets, product markets, and international trade. This places DEE at the cutting edge of on-going research.
Over the years DEE has made relevant contributions in the area of financial intermediation and
financial stability. The regular publication of the Financial Stability Report since 2005 is particularly noteworthy. The Department has also successfully participated in the Eurosystem’s Household Finance and Consumption Network.
In the 2004 Evaluation Report of Research Activities at the ECB, the evaluators wrote: “Academically oriented economists provide additional benefits to a central bank (…) such economists can
model economic circumstances not ordinarily, if ever, encountered in reality, such as financial
instability or deflation, and develop strategies for dealing with them”. The ability to adapt to
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ECONOMICS AND RESEARCH DEPARTMENT EVALUATION COMMISSION • Executive Summary: Conclusions and Main Recommendations
unforeseen circumstances has been illustrated, in the context of the financial crises, by the production of the Funding and Capital Plans and the Stress Tests.
DEE has been able to attract and maintain outstanding staff. In the last 10 years staff has averaged 77. In 2013 it declined to 73 as some of its staff moved to the newly established Financial
Stability Department (DES). The share of Ph.D. economists has increased, from 1/5 in 2000 to
1/3 in 2013. The Department has a strong deontology based on sound analysis and research.
That allows staff to work with remarkable cohesion even under stressful conditions.
Our overall assessment of DEE is positive. Nonetheless, the Economics and Research Department Evaluation Commission (from here on “Commission”) is of the view that there is potential
for improvement. Given the quantity and quality of resources available, DEE can move closer to
the efficiency frontier. In order to do so it should address gaps in some areas. Firstly, management practice could improve by following a top-down approach to strategic planning and priority-setting. Systematic evaluation of results against targets should also be adopted as standard
practice. Secondly, attracting, retaining and developing talent is a key goal. Hence, the recruitment strategy should clearly target the Department’s needs. Thirdly, financial factors will be key
drivers of Portugal’s performance going forward. Institutional changes linked to Banking Union
will shape the role of Banco de Portugal. Hence, financial intermediation and European Financial
integration should be key priorities over the medium term. Fourthly, excellence in research
should be continued. Finally, the Department is at the center for Banco de Portugal’s institutional publications. Publications should be clearly structured, targeted, focused, and streamlined.
Hence the Commission submits a number of recommendations and suggestions. The main recommendations are included in this Executive Summary. The complete list of recommendations
and suggestions is included at the end of the Report. The main recommendations concern the
management and internal organization as well as some of the Department’s main outputs.
Main recommendation 1. Set up an accountability framework
Given the long lead times associated with research and analytical work DEE should develop an
accountability framework. The framework would allow the Department to account for its use of
resources in fulfilling its tasks and functions. The accountability framework should encompass
the full programming cycle: planning, monitoring, evaluation, and communication. Annual planning of activities should build on the priorities defined in Banco de Portugal’ strategic planning
and define deliverables and key performance indicators to evaluate progress. Research activities
and analytical work should be programmed on the basis of clear rules and taking into account
the Bank’s priorities. Information on the planning and programming of activities should be available to all staff.
The accountability framework requires that metrics are available to measure the quantity and
quality of work produced. In many cases it will be necessary to ensure systematic feedback from
relevant stakeholders. That will be certainly the case for policy work and the provision of consultancy work by DEE to other departments of the Bank.
Conducting regular external evaluations of DEE could be part of the accountability framework.
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Main recommendation 2. Improve human resource management
Human resources are the Department’s key asset. Attracting, developing, and retaining talent is
a key managerial challenge. Human resource management should be integrated with the accountability framework so as to ensure full alignment of purpose. Such alignment should include
the clear setting of performance goals so as to ensure objectivity in the ex post evaluation of
performance.
In the Commission view it is important to develop a framework allowing for professional development and career progression. Banco de Portugal could consider the possibility of opening an
advisory career path that would parallel the current managerial path. The advisory career path
would be open to excellent professionals. It would be open to a select few focusing on bank
policy work, as well as to highly productive researchers. In any case the Commission is of the
view that the rules applying to promotion of researchers should be clearly decided and communicated. One important aspect is that sufficient research time should be guaranteed. In particular, researchers recruited directly after completing their Ph. D. should be given a period of time
where they would be (almost) exclusively focused on getting their papers published.
The Banco de Portugal could consider setting up a system aimed at identifying high potential
staff. The management of these careers should involve internal and external mobility.
In the view of the Commission efficiency in research and analytical work could substantially improve if DEE would make use of Research Analysts who could perform a large number of routine
tasks, thereby enabling staff to concentrate on more demanding tasks.
Main recommendation 3. Identify financial intermediation and European financial integration
as the priorities for the next three years and create a Financial Intermediation Area
This Commission is of the view that financial intermediation and European financial integration
will be crucial for Banco de Portugal and for the country in the next years. Firstly, the changing
financial structure will be a fundamental factor shaping trends and performance in the Portuguese economy. Secondly, Banking Union will imply that decision-making on micro and macro
prudential will approach the Eurosystem standard for monetary policy.
Consistent with this, “Financial stability in the European context” is the first of four strategic
guidelines set by Banco de Portugal for the next three years. The Department can contribute to
the strategic goal in a number of different ways.
It should enhance the analysis and forecasting of the Portuguese economy through the explicit
modeling of the financial factors. It should also contribute to the estimation of monetary and
credit conditions in Portugal and the understanding of the monetary transmission mechanism. A
broader issue is the evolution of financial intermediation in Portugal in the context of a financial
transformation in Europe. For this purpose it is crucial to explore synergies inside DEE.
In the area of financial stability it is particularly critical that policy advice by Banco de Portugal
staff is organized as an inter-departmental process so as to ensure that information, knowledge
and a diversity of views are adequately reflected in the process of reaching an institutional position. DEE should thus cooperate intensively with other business areas of the Bank. It should produce relevant research and provide analytical instruments and policy analysis to the macro and
micro prudential departments. It should also be an active participant in the editorial process
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leading up to the Financial Stability Report, which should continue to be led by the Financial
Stability Department.
In order to allow DEE to build the necessary capacity to contribute to these key priorities, the
Commission recommends the creation of a Financial Intermediation Area in DEE.
Main recommendation 4. Pursue excellence in research
On research the Commission is of the view that the path of excellence should be pursued further. Research should aim at publication in leading edge scientific journals. Clear career incentives for productive researchers are fundamental. Another important contribution would be the
adoption of a point-system for classifying scientific publications and to quantify research work.
Such indicator would be used when assessing staff performance. The Commission would suggest
that a system similar to the one used by the ECB could serve this purpose. It is also important to
explore synergies between research and policy work. From this viewpoint, clear signaling of
priority areas from the viewpoint of Banco de Portugal as a policy-making institution would be
particularly valuable.
Main recommendation 5. Rethink communication
On the contribution of DEE to external communication, the Commission is of the view that
some re-thinking would be appropriate in order to improve targeting and focus. In particular
communication policy should identify the targeted groups, their demands and the purposes of
communication. Quarterly Economic Bulletin has become the Banco de Portugal’s flagship publication. It is now the main vehicle of dissemination of the central bank’s views on the current
situation and prospects for the Portuguese economy. It is the main vehicle of communication
with the general public. The Commission suggests one senior economist of the Department
should be entrusted with the task of editor of Quarterly Economic Bulletin. That would facilitate
the transition to a simpler and more direct style of communication. The production process
should be associated with internal procedures aimed at early debate of the overall assessment
and relevant policy messages. Quarterly Economic Bulletin articles should be accessible to a
wide audience and focus on relevant topics for the policy debate.
The Commission is also of the view that the Annual Report could make a complete transition to
a standard corporate annual report format. In the same vein Indicadores de Conjuntura could
be limited to factual tables and charts. The release of Coincident Indicators could be accompanied by a devoted press release.
On the research side, Working Papers should be the series to disseminate research done at
Banco de Portugal. The aim would be early dissemination of analytical work that would potentially be published in top-level scientific journals. Working Papers should be submitted for publication in academic-refereed journals. The series should be the responsibility of DEE but open to
submissions from staff from other Departments.
Other analytical work could be disseminated in a new series: Staff Policy Notes. This new series
would contain the background analytical work behind some Quarterly Economic Bulletin articles
to be published. It would also replace the Occasional Papers that would be discontinued.
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