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The New Monetary Policy

Implications and Relevance

Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie

Beginning with an assessment of new thinking in macroeconomics and monetary theory, this book suggests that many countries have adopted the New Consensus Monetary Policy since the early 1990s in an attempt to reduce inflation to low levels. It goes on to illustrate that the explicit control of the money supply, which was fashionable in the 1970s and 1980s in the UK, US, Europe and elsewhere, was abandoned in favour of monetary rules that focus on interest rate manipulation by the central bank. The objective of these rules is to achieve specific, or a range of, inflation targets.
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Chapter 9: The Old Lady in new clothes: uncertainty and the UK monetary policy framework

Mark Roberts


Mark Roberts 1. INTRODUCTION1 The last decade has witnessed substantial reform of monetary policy operating procedures in many developed countries, with the general trend being towards more open and independent central banks.2 No better example of this is provided than by the UK. First, in the wake of sterling’s departure from the Exchange Rate Mechanism (ERM) in September 1992, we saw, for the first time, the introduction of an explicitly announced target for inflation. This was quickly followed in February 1993 by the introduction of a quarterly Inflation Report published by the Bank of England and providing a regular assessment of the outlook for UK growth and inflation. However, the most significant reforms to the UK monetary policy framework came in May 1997, immediately following Labour’s landslide general election victory.3 These reforms retained, in a modified form, the explicit (government-set) inflation target introduced in 1992,4 but delegated responsibility for the meeting of this target to the Bank of England as part of a new institutional framework for monetary policy. This new institutional framework emphasizes the need for transparency and accountability to an extent perhaps unparalleled in the history of monetary policymaking.5 Certainly, long gone are the days by which the Governor of the Bank of England can live by the maxim ‘Never explain, never excuse’ by which Montague Norman, Governor in the 1930s, lived (quote given in Boyle, 1967, p. 217). As has been widely commented upon, not least by members of the...

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