Show Less

Central Banking, Monetary Theory and Practice

Essays in Honour of Charles Goodhart, Volume One

Edited by Paul Mizen

Celebrating the contribution that Charles Goodhart has made to monetary economics and policy, this unique compendium of original papers draws together a highly respected group of international academics, central bankers and financial market regulators covering a broad range of issues in modern monetary economics. Topics discussed include: central bank independence; credibility and transparency; the inflation forecast and the loss function; monetary policy experiences in the US and the UK; the implications of Goodhart’s Law; the benefits of single versus multiple currencies; and money, near monies and credit.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 1: No money, no inflation- the role of money in the economy

Mervyn King


1. No money, no inflation – the role of money in the economy Mervyn King1 1. INTRODUCTION Most people think economics is the study of money. But there is a paradox in the role of money in economic policy. It is this: that as price stability has become recognised as the central objective of central banks, the attention actually paid by central banks to money has declined. It is no accident that during the ‘Great Inflation’ of the post-war period money, as a causal factor for inflation, was ignored by much of the economic establishment. In the late 1970s, the counter-revolution in economics – the idea that in the long run money affected the price level and not the level of output – returned money to centre stage in economic policy. As Milton Friedman put it, ‘inflation is always and everywhere a monetary phenomenon’. If inflation was a monetary phenomenon, then controlling the supply of money was the route to low inflation. Monetary aggregates became central to the conduct of monetary policy. But the passage to low inflation proved painful. Nor did the monetary aggregates respond kindly to the attempts by central banks to control them. As the governor of the Bank of Canada at the time, Gerald Bouey, remarked, ‘we didn’t abandon the monetary aggregates, they abandoned us’. So, as central banks became more and more focused on achieving price stability, less and less attention was paid to movements in money. Indeed, the decline of...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.