“Business surveys and forecasting remain at the heart of KOF’s work”

How do you look back on 2022 from the perspective of economic and business cycle research?

Jan-Egbert Sturm: 2022 was a year of normalisation in terms of the COVID-19 pandemic. Although coronavirus had not yet entirely disappeared, the pandemic lost its devastating impact and the economy and society learned how to deal with it. At the same time, the war in Ukraine and the sharp rise in inflation brought new economic risks to the fore. At the beginning of the year we were still of the view that inflation could well fall soon. But the outbreak of the war and the emergence of the energy crisis kept inflation elevated for longer than we had expected at the start of 2022.

Hans Gersbach: The major shocks of the last three years have posed a huge challenge for economic and business cycle research. There are two reasons for this. First, it was no longer possible to simply extrapolate past trends, so we often had to operate with risk scenarios. What’s more, during the pandemic we had to find new economic policy responses, of which we had little empirical knowledge at the time. This is because the standard economics textbooks don’t contain a chapter on pandemics. The same applies, to a lesser extent, to the energy crisis triggered by the war in Ukraine.

Do you get the impression that public interest in macroeconomic issues has increased during the COVID-19 pandemic and while inflation is high and interest rates are rising as a result of the war in Ukraine?

Gersbach: Yes, absolutely. The recent crises have fuelled many concerns among people, such as questions like “How safe is our money?” We at KOF can provide answers to such questions. This also requires new approaches to modelling the monetary system, which has changed because central banks’ reserves – including those in Switzerland – have grown significantly.

Sturm: Although prices had always been a key variable in our models, it had been decades since the issue of inflation had attracted as much publicity as it did in 2022. Inflation affects everyone – when they go shopping just as much as when filling their cars with petrol. That is not equally true of all areas of the economy. Unemployment, for example, only affects people who are out of work at the time.

The changes taking place recently have, of course, not only been external: the institute itself has initiated internal changes. KOF has been led by two directors – in the form of you two – since the beginning of this year. How will you divide up your responsibilities going forward?

Gersbach: We will share many responsibilities in the areas of strategy, finance and human resources. As research director I will focus on refining KOF’s methods and devising new research approaches. I would also like to help develop medium-term scenarios for Switzerland – including the expansion of research methods. Medium-term scenarios cover periods of two to five years (or maybe even ten) and focus on topics such as technological change and geopolitical developments.

Sturm: At present we concentrate on short-term forecasts, which generally cover the current and the coming year. If we now develop a further field of expertise in medium-term forecasting, these two areas can cross-fertilise each other. A long-term anchor – i.e. knowing in which direction our world is moving – also helps with short-term forecasting. KOF will continue to constantly enhance its core competence in business tendency surveys and economic forecasting. In future, however, we are looking to broaden our range of expertise even further with Hans Gersbach’s support.

The rETHink project has set ETH Zurich on course to overhaul its organisational structure. To what extent does KOF’s new organisational structure fit into this project?

Sturm: As just a small part of a large entity such as ETH, KOF is playing a pioneering role in rETHink. Our dual management team and new internal organisational structure make us one of the first units at ETH to put this project’s ideas into practice. This project is intended to strengthen personal responsibility at all levels and enable members of staff to become more involved in developing ETH’s organisational structure in future.

Young research staff are one of the most valuable resources for research institutes such as KOF. What does KOF do to encourage and support PhD students?

Sturm: During the pandemic we launched a mentoring programme for doctoral students so that they have contact with more than just their PhD supervisor and line manager and can benefit from the research expertise and lived experience of other senior researchers. This proved to be a useful format during the pandemic so that young research staff do not feel that they are simply being abandoned with a huge mountain of research to do.

Gersbach: We are also in the process of designing a ‘KOF Lab’, in which PhD students and post-docs can conduct their own research projects. The aim here is to use new, often unconventional methods to devise research approaches and to launch them with the support of KOF’s financial resources and third-party funding.

What does your long-term vision for KOF look like?

Sturm: Society is constantly changing and KOF is changing too. However, the institute’s core function will remain the same for the foreseeable future: we act as a bridge between research and society and the economy and plan to continue to make our research findings available to practitioners. We take our function as a bridge very seriously.

Gersbach: Exactly. And forecasting and using our business surveys to monitor the economy will remain at the heart of what we do. We therefore intend to continue improving and refining our research methods.

The interview was conducted by Anne Stücker and Thomas Domjahn from KOF Corporate Communications.