MathWorks was recently invited to the 2^nd Biennial Macroeconometric Caribbean Conference in Nassau, Bahamas, organized by The Central Bank of The Bahamas and Indiana University.

Dr. Allan Wright and team from the Central Bank of The Bahamas did a great job of bringing together leading economists and policymakers to discuss pressing macroeconomic issues, with a focus on monetary policy, fiscal sustainability, and consumer sentiment.

We’ve listed a few key points brought up in the talks over the 2-day conference in this blog post.

Introduction

John A Rolle, Governor of The Central Bank of The Bahamas, in his introductory remarks, emphasized the importance of data-driven policymaking to address economic challenges in the Caribbean. He highlighted the role of central banks in fostering stability and resilience, particularly in the face of global uncertainties like inflation and climate change. Governor Rolle also stressed the need for regional collaboration to enhance economic modeling and forecasting capabilities. His comments underscored the Central Bank of The Bahamas’ commitment to supporting sustainable economic growth through evidence-based strategies.

The complete transcript of his talk can be found here.

Day 1

Fiscal Policy in Times of Uncertainty and High Debt

Speaker: Era Dabla-Norris – Deputy Director, IMF

Era Dabla-Norris warned of rising global debt risks, particularly in the Caribbean. Using a “Debt-at-Risk” framework, she showed how weak growth, financial stress, and policy uncertainty amplify debt vulnerabilities. To mitigate risks, countries need credible fiscal rules, growth-friendly adjustments, and transparency to avoid surprise deficits.

Fed Communication and Risk Premia

Speaker: Anna Cieslak – Duke University

Anna Cieslak showed how the Fed’s messaging impacts financial markets. Clear, forward-looking signals (especially hawkish ones) reduce risk premia, while ambiguity raises uncertainty. Her research highlights that post-2020, delayed policy responses increased market volatility, proving that precise communication is crucial for stability.

Attention-Driven Sentiment and the Business Cycle

Speaker: Rupal Kamdar – Indiana University

Rupal Kamdar’s talk conveyed that consumers link inflation to rising unemployment. Households focus more on supply shocks (like prices) than demand, skewing expectations. This means policies aiming to boost inflation expectations could backfire if consumers see higher prices as a sign of economic trouble.

Managing the Post-COVID Inflation Shock

Speaker: Richard Byles – Governor, Bank of Jamaica

Governor Byles shared how Jamaica controlled inflation post-COVID. Early rate hikes (650 bps),  disciplined fiscal policies, and strategic FX interventions stabilized prices faster than regional peers. Key lessons: strong pre-crisis buffers, and credible institutions are vital for small, open economies.

Speeches by the Fed Chair Are More Important than FOMC Announcements

Speaker: Eric Swanson – UC Irvine

Eric Swanson’s research demonstrated that speeches by the Federal Reserve Chair now exert a stronger influence on asset prices than traditional FOMC announcements, particularly for stocks, bonds, and longer-term interest rates. Post-FOMC press conferences have also gained prominence, nearly matching the impact of formal policy statements. These findings suggest that central banks must broaden their measurement of policy shocks to account for the growing role of informal communication, as forward guidance and large-scale asset purchases (LSAPs) produce consistent effects across different types of announcements.

Challenges Ahead for Central Banks in the Americas

Speaker: Alexandre Tombini – Chief Representative Office, BIS

With growth and inflation diverging across advanced and emerging economies, commodity price swings continue to disproportionately affect Latin American markets. Alexandre Tombini highlighted the risks posed by U.S. monetary tightening and dollar strength, urging policymakers to bolster fiscal resilience and anchor inflation expectations. His analysis underscored the need for proactive measures to mitigate spillovers from advanced-economy policies while supporting domestic stability.

Day 2

Certain Uncertainty

Speaker: John C. Williams – President, Federal Reserve Bank of New York

John Williams highlighted the U.S. economy’s resilience, with strong GDP and job growth, though inflation remains slightly above the Fed’s 2% target. He emphasized the significant role of global factors—particularly supply shocks—in driving inflation trends, noting that monetary policy actions in one country can spill over internationally. While short-term inflation expectations have risen recently, longer-term expectations remain stable, suggesting confidence in the Fed’s ability to restore price stability. Amid high uncertainty, Williams reaffirmed the Fed’s data-dependent approach, maintaining a modestly restrictive policy stance to balance maximum employment and inflation control while remaining adaptable to changing economic conditions.

The complete transcript of his talk can be found here.

Behavioral Attenuation

Speaker: Ryan Oprea – UC Santa Barbara

Ryan Oprea proposed a unifying explanation for numerous behavioral economic anomalies. His experiments across 30 decision-making tasks revealed that insensitivity to key parameters—such as wages, interest rates, and probabilities—stems from cognitive constraints rather than domain-specific biases. When faced with complex trade-offs, individuals exhibit “behavioral attenuation,” underreacting to changes in economic fundamentals. This pattern explains phenomena ranging from probability weighting to hyperbolic discounting, suggesting that many behavioral “anomalies” may simply reflect the brain’s limited computational capacity.

Monetary Policy for the Masses with 37% Luck

Speaker: Jim Bullard – Dean, Purdue University

Jim Bullard’s model, incorporating both life-cycle effects and uninsurable idiosyncratic risk, confirmed that the “Wicksellian natural rate” remains the optimal benchmark, even in economies with extreme wealth and income disparities. Rather than attempting to redistribute resources, Bullard argued that central banks should prioritize stabilizing credit markets. His empirical analysis showed that consumption growth patterns align closely across income groups, reinforcing the view that conventional monetary policy frameworks remain effective despite macroeconomic inequality.

Caribbean Central Banks and Climate Change

Speaker: Alvin Hilaire – Governor, Central Bank of Trinidad & Tobago

Governor Hilaire shared that climate change poses existential risks to Caribbean economies, including rising sea levels, stronger hurricanes, and disrupted food production. Central banks are stepping up by integrating climate risks into financial supervision (e.g., stress testing), investing reserves in ESG assets and promoting green bonds, and leading public education and regional collaboration efforts. A unified regional approach is critical to secure climate financing and build resilience.

HANK’s Response to Aggregate Uncertainty in an Estimated Business Cycle Model

Speaker: Cosmin Ilut – Duke University

Cosmin Ilut highlighted that Heterogeneous Agent New Keynesian (HANK) models, when extended to include aggregate uncertainty (ambiguity), better explain business cycles and asset prices. Aggregate uncertainty amplifies recessions, with ambiguity shocks driving 70% of cyclical variation in key macro aggregates. Capital premiums reflect compensation for both illiquidity and uncertainty, with richer households bearing more risk. HANK models outperform RANK (representative agent) models in fitting investment and capital premium dynamics.

Evaluating Policy Counterfactuals: A VAR-Plus Approach

Speaker: Alisdair McKay – Federal Reserve Bank of Minneapolis

Traditional methods for evaluating policy counterfactuals (e.g., structural models) can be mis-specified. Alisdair noted that, the “VAR-Plus” approach combines reduced-form VARs with model-based extrapolation to assess the impact of policy changes, such as inflation targeting, without requiring a full structural account of business cycle drivers. Transitory policy changes can be analyzed semi-structurally using empirical data, while persistent changes benefit from model-based extrapolation.

Uniform and Distribution-free Inference with General Autoregressive Processes

Speaker: Katerina Petrova – Federal Reserve Bank of New York

Katerina presented an instrumental variables approach that works across stationary, explosive, and unit root cases, addressing limitations of traditional estimators. The method has applications in inflation modeling, financial markets (like detecting asset bubbles), and epidemiological analysis. This framework provides reliable inference without requiring pretesting about the persistence level, using standard normal critical values.

Conclusion

The conference gave us an opportunity to hear from and meet experts in economics from different countries and organizations in the region. After 2 days of deep discussions on a variety of different topics, we left Nassau with fresh insights – and a little time well spent by the ocean.