The Queen of Numbers

Positionthe Publisher of the IMF.

People in Economics

Jeremy Clift profiles Lucrezia Reichlin, a pioneer in real-time short-term forecasting

Euro area growth may be on the mend, but the risks are far from over and the region is still in for a bumpy ride, reckons Lucrezia Reichlin, a professor at the London Business School who was the first female head of research at the European Central Bank (ECB).

“I think we’re not out of the crisis, and it’s going to take a while before we find the way,” says Reichlin, an expert in business cycle analysis. “We have a technical recovery in terms of GDP showing positive growth, but it doesn’t mean the risks to Europe are over,” she says in her cramped office overlooking London’s Regent’s Park.

She is a pioneer in real-time short-term economic forecasting that harnesses large amounts of data, and her expertise intersects the commercial and academic worlds. Chair of the Economics department at the London Business School, she is also a non-executive director of UniCredit—an Italian commercial bank active in central and eastern Europe—a former director of research at the ECB under then-President Jean-Claude Trichet, and a former consultant to the U.S. Federal Reserve.

Ringside seat

“Sitting on the board of a commercial bank gives you a ringside perspective of Europe’s banking problems,” says Reichlin, who lives in north London with her daughter but visits Italy regularly.

She sees a banking union and implementation of a planned process for reorganizing or winding up failed banks as crucial next steps for a more stable euro area. The outcome of European Parliament elections in May 2014 could be critical to progress in the EU’s underlying financial architecture.

A banking union will introduce common rules and protections within the 18-member euro area by establishing an overall supervisory mechanism under the ECB, a single resolution mechanism for bailing out or winding up troubled banks, and a common deposit guarantee system (see “Tectonic Shifts,” in this issue of F&D). The European Union has taken some steps in the right direction, but Reichlin says more needs to be done to build a stable common monetary policy for a financially integrated world.

An Italian native, she talks with enthusiasm and empathy about her country. She studied economics at the University of Modena, a city known as the world’s “supercar capital” because of its proximity to the headquarters of Ferrari, Maserati, Lamborghini, and Pagani. She left Italy to pursue a Ph.D. at New York University before moving to teach at the Université Libre of Brussels for 10 years, where she collaborated to develop econometric models for handling large data sets, pioneering research on dynamic factor models that is now popular worldwide in applied macroeconomics.

In 2002 she visited the Fed at the request of then-governor Ben Bernanke (who became chairman four years later) to evaluate adapting these techniques to develop a model for short-term forecasting at central banks. This model has been adopted by many institutions around the world and is the basis for her business, Now-Casting Economics Ltd., which she cofounded 10 years later. Now-Casting uses the model she developed with her former doctoral student Domenico Giannone to forecast leading economies’ current-quarter GDP growth in real time.

Radical roots

Reichlin’s story and that of her family are closely bound up with the story of Europe since World War II. Her Swiss great-great-grandparents moved to southern Italy from Switzerland in the 19th century; her mother’s family is of Jewish origin and comes from Trieste, which until World War I was part of the Austro-Hungarian Empire. Born and raised in Rome, Reichlin grew up in a household of radical thinkers and political activists.

Her mother, Luciana Castellina, a well-known Italian Communist intellectual who later became a member of the European Parliament, played tennis as a child with Fascist dictator Benito Mussolini’s daughter. Her father, Alfredo Reichlin, was in the Italian resistance during the war and joined the Communist Party in 1946, becoming one of its leaders and its shadow “economy minister.” Her brother...

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