You are looking at 1 - 10 of 51 items :

  • natural rate of interest x
  • Open access x
Clear All
Open access

Tim Congdon

, monetary policy was extremely loose in the 18 months from autumn 1971, and a wild boom developed. Although a degree of order was restored to policy-making by the introduction of money supply targets in 1976, the operation of these targets was widely deemed to be unsatisfactory. With much uncertainty about the best policy regime for the UK, the conduct of policy was often erratic. Big swings in interest rates and inflation were accompanied by two big boom–bust cycles (from 1971 to 1974 and from 1986 to 1992), and one smaller cycle (from 1977 to 1982). The period can be

Open access

Tim Congdon

teams at the OECD and IMF, at least five years before it was absorbed into the so-called ‘New Keynesianism’ of technical academic articles. Indeed, within two or three years from the announcement of the UK’s inflation target in late 1992 the notion of basing interest rate decisions on the monetarist, natural-rate concept of the output gap had taken hold. I am not claiming any originality for the underlying ideas which – in my opinion and as I have always said – come from Friedman. But I am protesting against the labelling of the now dominant policy-making framework as

Open access

Tim Congdon

Reflections on Monetarism 2. Some key themes The adoption of money supply targets was announced publicly on 22 July 1976, although the Bank of England has claimed that it had in fact been privately following the money supply for two or three years before this. Money supply targets had repercussions on all areas of macroeconomic policy. Most obviously, as we saw in the previous section on ‘setting the agenda’, there were implications for interest rates and exchange rates. Monetary targets required both that interest rates be readily adjusted to changing trends in

Open access

Tim Congdon

technical content. Also important in explaining their attitudes is that British economists had become habituated to basing macroeconomic policy on external criteria, notably the exchange rate, instead of analysing domestic monetary conditions. Officials at the Bank of England, which for most of its history had been charged with keeping the pound stable in value against gold or the dollar, undoubtedly found it more natural to adjust interest rates in response to exchange rate movements than to deviations of the money supply from its target level. In this context the

Open access

Tim Congdon

debate and have been unable to avoid this practice in previous chapters. But, in fact, this label is misleading and a nuisance. I would like the sort of monetarist who thinks that money GDP is determined by MO (or M3 or M4) to be called a ‘naive monetarist’ and his sort of analysis ‘naive monetarism’. According to the second school of thought (‘Keynesian’), the level of spending is determined by a number of variables (such as tax rates, world trade and interest rates), whose relative importance is best assessed by carrying out statistical tests on past data. (In

Open access

Tim Congdon

Keynes, the Keynesians and Monetarism is a major contribution to the continuing debate on macroeconomic policy-making. Tim Congdon has been a strong supporter of monetarist economic principles for over 30 years. His writings – in the newspapers and for parliamentary committees, as well as in academic journals – played an influential role in the transformation of British macroeconomic policy in the 1980s and 1990s.
Open access

Tim Congdon

3. Keynes, the Keynesians and the exchange rate One of the most quoted remarks in economics comes in the final chapter of Keynes’s General Theory of Employment, Interest and Money, where he says: the ideas of economists, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their

Open access

Tom Dedeurwaerdere

report 25 years ago: Those looking for success and signs of hope can find many: infant mortality is falling; human life expectancy is increasing; the proportion of the world’s adults who can read and write is climbing; the proportion of children starting school is rising; and global food production increases faster than the population grows (WCED, 1987, p. 19). On the other hand, by depleting the world’s stock of natural wealth on a global scale – often irreversibly – the prevailing, and predominant, economic and development models increasingly have detrimental

Open access

Tim Congdon

-holders are more concerned about the market value or the nominal value of the debt. The natural assumption would seem to be that they focus on the market value of debt issued in the past, but the budget deficit represents new additions to the nominal value of the debt. The successful passage of the economy from high to low inflation would reduce interest rates, increasing the market value of the national debt but having no effect on the increase in the nominal debt associated with a particular budget deficit. More fundamentally, the national debt/income ratio has varied

Open access

Tim Congdon

value against gold or the dollar, undoubtedly found it more natural to adjust interest rates in response to exchange rate movements than to deviations of the money supply from its target level. (The historical roots for policy-makers’ preference for external, exchange-ratebased signals are discussed above in Essay 3 on ‘Keynes, the Keynesians and the exchange rate’.) In this context the debates between British and American monetarists were important. In the circumstances of the early 1980s, when monetarism was very much on trial, the new system needed to be defended