Essays in Honour of Charles Goodhart, Volume One
Edited by Paul Mizen
Discussion of ‘Goodhart’s Law: its origins, meaning and implications for monetary policy’ Charles Goodhart While I am grateful to Alec Chrystal and Paul Mizen for their paper, nonetheless I feel that they treat the subject with more respect than it really deserves. It was, after all, only a throw-away line, but it is no doubt better to be remembered for a jest, than not at all. And it does have some merits. One of the events that I best remember in the Bank was towards the end of 1973, when broad money, sterling M3 as it was then, was growing at a rate that was causing all kinds of public, political and press commentary, and problems. The request came down from the Prime Minister that we in the Bank were to control the rate of growth of the money stock, but we were to do so in a way that did not involve any increase in interest rates. Moreover, the Bank had recently, in 1971, introduced the new regime of ‘Competition and Credit Control’ whereby, with exclamations of self congratulation, we removed all the direct controls, the quantitative ceilings on bank lending. So what were we going to do? Anyhow John Fforde left this particular problem in my lap, and I came up with the ‘Corset’, which was just suﬃciently complicated and based on incremental changes in interestbearing (eligible) liabilities (IBELs), so that it was not immediately apparent to everyone that this was just another rather fancy quantitative direct...
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