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Guest post: Central bankers should watch the Eurovision (by Jens Pedersen)

Guest post: Central bankers should watch the Eurovision

By Jens Pedersen

Congratulations Emmelie de Forest with the 2013 Eurovision song contest first place. You have made all of Denmark very proud!! Denmark normally does not win anything, so this is really big for us! (note the irony…)

However, I regret to say that I did not watch the competition yesterday. Not that I do not like a good song contest or that I am not a patriot rooting for my country.  The reason that I did not watch the song contest was simply that the bookmakers had Denmark as a heavy favourite to win and history shows that the bookmakers are rarely wrong in their Eurovision predictions. Bookmakers have correctly predicted four out of last five Eurovision winners. Hence, the results were pretty much given before hand, which really takes away all of the excitement.

I do, however, hope that every central banker out there watched the Eurovision song contest yesterday. It serves a great example that looking at market expectations is the best way of predicting the outcome of an uncertain event.  If markets can predict the winner of the Eurovision they should also come pretty close at predicting the future rate of inflation, real and nominal GDP growth, the rate of unemployment etc. Hence, the first thing central banks should do on Monday is to set up prediction markets for key economic variables. This will be a great help in guiding future monetary policy decisions.

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  1. Prediction market: Fed on track to hit 4% NGDP growth in 2015 | The Market Monetarist

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