Journal Article

The inflation-targeting regime in the United Kingdom: a view from Threadneedle Street

Spencer Dale, James Proudman and Peter Westaway

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 26, issue 1, pages 3-14
Published in print January 2010 | ISSN: 0266-903X
Published online January 2010 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grp033
The inflation-targeting regime in the United Kingdom: a view from Threadneedle Street

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The recent financial crisis and subsequent deterioration in macroeconomic outcomes have raised question marks over the framework for monetary policy in the United Kingdom. This paper examines the performance of the UK's monetary policy framework in the light of these questions. Far from concluding that inflation targeting needs to be replaced, we argue in the paper that the regime has provided a clear policy compass that facilitated strong and decisive monetary policy decisions during the financial crisis. We argue that it should remain the mainstay of the UK macroeconomic policy framework. Even so, lessons need to be learnt to prevent financial market excesses from destabilizing the economy in future: the single most important being the need to expand the range of instruments available to policy-makers.

Keywords: monetary policy; inflation targeting; asset prices; quantitative easing; E00; E3; E4; E5; E6

Journal Article.  5306 words.  Illustrated.

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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