Free Economics Dissertations - With Regard To Performance, Macroeconomic Performance Since The Inception Of
With regard to performance, Macroeconomic performance since the inception of inflation targeting in October 1992, has probably exceeded the expectations of most observers. RPIX inflation has averaged 2.6%, and GDP growth has averaged 2.8%; since Bank independence the corresponding figures are 2.4% and 2.5%. Given previous experience, both growth and inflation have also been remarkably stable.
Should any significance be attached to the slight tendency for inflation for undershoot the target independence? First, it should be said that this was not the result of conscious decision by the committee because, as already noted, the published forecasts usually showed the central projection close to target by the end of the forecast horizon.
SUMMARY AND CONCLUSION
In this paper we have talked about the history of inflation rates in the United Kingdom with regard to factors underlying policies that were adopted by both the Conservative party, under Margaret Thatcher and the Labour party, before the present Chancellor, Gordon Brown, and the new policies adopted by him. We have also looked at the issue of Britain leaving the ERM, which lead to an economic recession, and the inept independence giving to the Bank of England in relation to its control of inflation rates by the Labour party, when it came into power in 1997. Additionally, we have talked about the various procedures that members of the Monetary Policy Committee have to adhere to.
It would be worthwhile to conclude that Britain’s monetary policy regime seems to have been in a state of perpetual revolution for much of the post-war period. However, learning from the experience of other countries, there now seems to be an institutional arrangement and a monetary policy framework that have served to bring a degree of macroeconomic stability to the United Kingdom that could never have been envisaged in 1992. Of the two major policies, the operational independence of the Bank of England and an inflation target, the former is perhaps more fundamental. But the latter has also been important in helping cement low and stable inflation and in anchoring inflation expectations. No doubt the world will continue to throw up new challenges to monetary policy makers, in the United Kingdom and elsewhere. The application of targets will then need to evolve to meet these challenges, but the current structure, I believe, offer a robust and flexible apparatus in which to address them.
REFERENCES AND BIBILIOGRAPHY
Bank of England, (2000), Inflation Report, November.
Bank of England, (2003), Inflation Report, May.
Bean, C. R., (1998), ‘The new UK monetary arrangements’, A view from the literature, Economic Journal, 108, pp. 1795 1809.
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