Monetary Policy
2007 Q1
The Monetary Policy Committee of the Bank of England: ten years on 
(850k)
Compared to past performance, UK inflation has been low and unusually stable since the inception of inflation targeting, while GDP growth too has been remarkably stable. In part that reflects the effectiveness of the inflation-targeting framework and the current institutional arrangements, particularly by anchoring inflation expectations and reducing the sensitivity of inflation to demand and cost shocks.
But other factors have also provided a benign context for the MPC's efforts: cheaper imports and increased competitive pressures associated with globalisation; and increases in labour supply, associated in part with inward migration. Both have dampened inflationary pressures and reinforced the changes in the inflation process associated with the change in monetary regime. The environment is unlikely to be so benign in the future.
The submission also covers the impact on monetary policy of a number of particular issues that have been relevant to the MPC's deliberations over the past decade: the balance of demand and the exchange rate; money supply and liquidity; asset prices; household debt; and investment.
Summer 2006
Reflections on operating inflation targeting (366k)
Speech by Paul Tucker, at the Chicago Graduate School of Business
Sets out some reflections on the operation of an inflation-targeting regime after four years on the MPC. Addressing the key objectives of modern central banking and how they may be met, the central role of anchoring medium to long-term inflation expectations is emphasised. On the second element in the conduct of policy - stabilisation of the path of demand and output, to help meet the inflation target and as worthwhile in its own right - he argues that 'rough tuning' is a more feasible objective than attempts at fine tuning, in the face of limited knowledge about structural change in the economy and inevitably imperfect data. Turning to four issues of strategy for modern policymakers, he offers some comments on whether central banks should publish an expected policy path; on whether there is a time-consistency problem in their operation of stabilisation policy; on whether price-level targeting could make stabilisation policy more effective; and on how central banks should respond to asset prices. A thread running through the speech is that the successful operation of policy requires straightforward communication by central banks about policy objectives and the conduct of policy, without glossing over uncertainties and risks.
Autumn 2005
Assessing the MPC’s fan charts (885k)
By Rob Elder, George Kapetanios, Tim Taylor and Tony Yates
The MPC places considerable weight on its economic forecasts when setting monetary policy. But there is inevitably uncertainty around the outlook for the economy, and to communicate this, the MPC publishes its projections as fan charts. This article discusses some of the issues that must be taken into account when assessing those fan charts, it reports a range of formal and informal tests of various aspects of the MPC’s fan charts, and it discusses developments in the economy that may have pushed outturns away from the MPC’s central projections. With only six years of fan chart projections that can be compared with outturns, the sample is too small to draw strong conclusions. But to date, at most forecast horizons, inflation and output growth outcomes have been dispersed broadly in line with the MPC’s fan chart bands. That suggests that the fan charts gave a reasonably good guide to the probabilities and risks facing the MPC.
Spring 2005
Monetary
policy in an uncertain world
(128k)
Accompanying
PowerPoint Slides 
(176k)
Speech by Charlie Bean, given at Oxonia Distinguished Speakers
Seminar, The Oxford Institute of Economic Policy
Reviews and assesses the three types of uncertainty which affect
monetary policy makers: uncertainty about the data; uncertainty
about the nature and persistence of shocks; and uncertainty
about the structure of the economy. He notes the unusual stability
of inflation and output growth in the past decade or so. The
short-run trade-off between inflation and activity seems to
have flattened as inflation has stabilised at low levels, which
is partly due to improved monetary policy making.
Autumn 2004
Some
current issues in UK monetary policy
(114k)
Speech by Charlie Bean, at the Institute of Economic Affairs
Notes that the increase in gross household debt has been primarily
associated with asset accumulation rather than borrowing in
order to finance consumption, so any impact of debt on the macroeconomic
outlook depends on differences in the behaviour of lenders and
borrowers. Also argues that, if interest rates are a long way
from 'normal', forecasts for inflation and growth assuming that
rates follow a path implied by the financial markets provide
a more useful picture of economic prospects than assuming interest
rates remain constant.
Autumn 2004
Managing
the central bank's balance sheet: where monetary policy meets
financial stability
(527k)
Lecture by Paul Tucker, at Lombard Street Research
Sets out the analysis underlying the Bank's announcement on
22 July of major reforms to its operations in the sterling money
markets. Outlines the problems with the current framework and
argues that the new system represents a fundamental change in
how the Bank thinks about the implementation of monetary policy,
the lubrication of the wholesale payments system, and the provision
of liquidity insurance to the banking system.
Summer 2004
Boring
bankers - should we listen?
(130k)
Speech by Richard Lambert, to the Institute for Public Policy
Research
Discusses the importance of good communications to modern central
banks and concludes that there might be room for the Bank to
build yet more public support for price stability by seeking
to communicate to a broader range of audiences.
Spring 2004
The
Governor's speech at the annual Birmingham Forward/CBI business
luncheon
(108k)
Argues that the recent change in the inflation target is unlikely
to have any material impact on the decisions of the MPC in the
near future and that economic decisions by businesses and individuals
over the next year or so should be unaffected too.
Spring 2004
Inflation
targeting - achievement and challenges
(123k)
Speech by Rachel Lomax, to the Bristol Society at the University
of the West of England
Reviews the improvement in economic performance associated with
inflation targeting, and explains why this approach to monetary
policy works well. Concludes that an open approach to uncertainty
and disagreement has underpinned the MPC's credibility, and
increased its ability to respond to changing circumstances.
Spring 2004
Risk,
uncertainty and monetary policy regimes
(263k)
Speech by Paul Tucker, to the UK Asset and Liability Management
Association
This speech explores how option prices can shed light on the
risks in the current financial environment, including uncertainty
about the expected path of monetary policy. Market uncertainty
seems not to have been influenced by the recent change in the
Government's inflation target.
Winter 2003
Inflation
targeting: the UK experience
(282k)
Speech by Charles Bean, at the annual meeting of the German
Economic Association
Reviews the background to the adoption of an inflation target
in 1992 and the subsequent development of the regime, in particular
the delegation of operational responsibility for monetary policy
to the Bank in 1997 and the associated institutional framework.
Also discusses some aspects of performance since then, and how
monetary policy should respond to asset price booms and high
rates of debt accumulation.
Spring 2003
Six
months on the MPC: a reflection on monetary policy
(122k)
Speech by Marian Bell delivered to the CBI South East in Crawley,
Sussex
Discusses three current issues in the context of the role and
limitations of monetary policy: house prices, discretion and
deflation. She suggests that areas such as house prices are
not suited to monetary policy control and argues that the degree
of discretion offered by the letter-writing process is limited.
Deflation, on the other hand, is an area where monetary policy
can have an influence. As deflation is a monetary phenomenon,
the monetary policy authorities' job is to prevent a pernicious
deflation occurring. She notes that with the exception of Japan,
broad money growth in the major economies is strong and the
risk of deflation is not high currently, but if it should threaten,
it is something that policy-makers would respond to.
Spring 2003
Adjusting
to low inflation - issues for policy-makers
(196k)
Speech by Kate Barker delivered at the Manchester Statistical
Society Meeting
Considers some of the implications for the United Kingdom of
the transition to a low-inflation regime.
Spring 2003
Report
on modelling and forecasting at the Bank of England
(173k)
By Adrian Pagan
Report to the Court of Directors of the Bank of England on the
modelling and forecasting systems within the Bank. Followed
by Bank's
response to the Pagan Report
(36k).
Spring 2003
Monetary
policy and the zero bound to nominal interest rates
(93k)
By Tony Yates
Assesses likelihood of nominal interest rates reaching their
lower bound of zero in the United Kingdom. Reviews what the
academic literature has to say about the scope for alternatives
to cutting interest rates in the improbable event that nominal
interest rates do reach zero.
Winter 2002
The
inflation target ten years on
(282k)
Lecture to the London School of Economics by Mervyn King
Re-examines the case for price stability ten years after Robin
Leigh Pemberton asked the same question in the first LSE-Bank
of England lecture. Mervyn King asks three questions. Did the
benefits of low inflation promised ten years ago materialise?
What does price stability mean in practice? And finally, what
are the challenges for monetary policy over the next decade?
Autumn 2002
Committees
versus individuals: an experimental analysis of monetary policy
decision-making
(89k)
By Clare Lombardelli, James Talbot and James Proudman
This article reports the results of an experimental analysis
of monetary policy decision-making under uncertainty.
Autumn 2002
Monetary
policy issues: past, present, future
(88k)
Speech by Professor Stephen Nickell, delivered at a lunch organised
by Business Link and the Coventry and Warwickshire Chamber of
Commerce in Leamington Spa
Considers four issues. First, has the MPC exhibited a deflationary
bias? (No). Second, is the United Kingdom going to experience
a surge in trend productivity growth in the near future for
New Economy reasons? (No). Third, the 'imbalances' that currently
afflict the UK economy. Fourth, the current prospect for monetary
policy. This explains why, when the MPC central projection for
inflation rises above target at the two-year forecast horizon,
this should not automatically imply a rise in interest rates.
Summer 2002
The
Monetary Policy Committee: five years on
(49k)
Speech by Mervyn King, delivered to the Society of Business
Economists in London
Reflects on the first five years of the Monetary Policy Committee.
He poses four questions about the role and record of the MPC.
First, why give the power to decide interest rates to a committee
rather than an individual? Second, does it matter that the MPC
frequently disagrees about its decision? Third, has the Committee
communicated clearly the reasons for its decisions? Fourth,
does the MPC require reform?
Winter 2001
The
formulation of monetary policy at the Bank of England
(86k)
By Charles Bean and Nigel Jenkinson
This article describes the internal processes adopted by the
Monetary Policy Committee and the Bank for the formulation of
monetary policy. It covers the regular monthly policy round
as well as the quarterly forecast round and the preparation
of the accompanying Inflation Report.
Spring 2001
The
Kohn Report on MPC procedures
(80k)
By Donald L Kohn
Report to the non-executive Directors of the Court of the Bank
of England on monetary policy processes and the work of Monetary
Analysis. Followed by Bank
of England response to the Kohn Report
(32k).
May 2000
The new economy and the old monetary economics
(136k)
Speech by Willem H Buiter given to the Aberdeen Chamber of Commerce
Argues that the behaviour in recent years of the world economy,
led by the United States, can, in the opinion of a number of
observers, only be understood by abandoning the old conventional
wisdoms and adopting a 'New Paradigm'. Makes two distinct points.
First, the New Paradigm has been over-hyped. Second, to the
extent that we can see a New Paradigm in action, its implications
for monetary policy have often been misunderstood.
November 1999
Challenges
for monetary policy: new and old
(170k)
Paper by Mervyn King prepared for the Symposium on 'New challenges
for monetary policy' sponsored by the Federal Reserve Bank of
Kansas City at Jackson Hole, Wyoming
Argues that central banks have reached a record high in terms
of their power and reputation. But to retain that position,
they have to face two major challenges in a low inflation environment.
The first is to decide on the objective for monetary policy.
The second challenge is to improve central banks' understanding
of the transmission mechanism. Concludes by speculating about
the future of central banks.
August 1999
The
use of explicit targets for monetary policy: practical experiences
of 91 economies in the 1990s
(50k)
By Gabriel Sterne
In June 1999, the Bank of England hosted its sixth Central Bank
Governors' Symposium. The subject was 'Monetary policy frameworks
in a global context', based on a report prepared by DeAnne Julius
of the Bank's Monetary Policy Committee and Maxwell Fry, Lavan
Mahadeva, Sandra Roger and Gabriel Sterne of the Bank's Centre
for Central Banking Studies (CCBS). This article draws on one
of the chapters of the report, which uses a survey of 91 central
banks to assess developments in monetary frameworks across a
wide cross-section of economies.
August 1999
The
MPC two years on
(41k)
Speech by Mervyn King given at Queen's University Belfast
Looks back over the first two years of the Monetary Policy Committee.
Notes that it is too early to judge the Committee's performance
against the recent history of inflation. Discusses challenge
of building a 'constituency for low inflation'.
May 1999
Economic
models and monetary policy
(33k)
Speech by John Vickers given at the National Institute of Economic
and Social Research
Discusses the role of economic models in monetary policy-making,
and explains why the Bank uses a suite of models, rather than
a single model, to assist its forecasting and analysis.
May 1999
Monetary
policy and uncertainty
(50k)
By Nicoletta Batini, Ben Martin and Chris Salmon
Describes various types of uncertainty that policy-makers may
face. It summarises analysis, including recent work by Bank
staff, that shows how different forms of uncertainty could lead
to different policy responses.
May 1999
The
Bank's use of survey data
(66k)
By Erik Britton, Joanne Cutler and Andrew Wardlow
Provides a brief outline of how surveys are used to inform the
MPC's economic assessment and policy decisions.
February 1999
Central
bankers and uncertainty
(132k)
Annual Keynes lecture, delivered by Professor Charles Goodhart
at the British Academy. Followed by discussion of the lecture
by Charles Bean (LSE) and Charles Freedman (Deputy Governor,
Bank of Canada)
Discusses how central banks do, and how they should, change
short-term interest rates in response to economic developments.
February 1999
Monetary
policy rules and inflation forecasts
(50k)
By Nicoletta Batini and Andrew Haldane
Compares the use of simple backward-looking interest rate rules
for monetary policy with policy rules that respond to forecasts
of future inflation, in line with monetary policy behaviour
in real world.
November 1998
Economic
policy, with and without forecasts
(29k)
Speech by Sir Alan Budd at the Sir Alec Cairncross Lecture
Discusses the debate between those who believe that monetary
policy should be based on a small number of current indicators
and those who use model-based forecasts to assist their decisions.
Describes the role of the inflation forecast in the MPC's decisions.
November 1998
Inflation
targeting in practice: the UK experience
(49k)
Speech by John Vickers at the conference on Implementation of
Price Stability held in Frankfurt
Discusses theoretical and practical issues relating to inflation
targeting as used in the United Kingdom during the past six
years.
February 1998
The Inflation Report projections: understanding the fan chart
(354k)
By Erik Britton, Paul Fisher and John Whitley
Discusses motivation for publishing forecast as a probability
distribution. Describes how fan chart is produced and explains
how it reflects forecast process.
November 1997
The Inflation target five years on
(54k)
Speech by Mervyn King at LSE to mark the tenth anniversary of
the LSE Financial Markets Group
Outlines use of inflation targets since introduction of one
in UK 5 years previously. Reviews the experience of inflation-targeting
countries, discusses charge that inflation targets ignore output,
explains role of inflation forecasts and stresses the importance
of transparency and accountability. Concludes that current monetary
policy framework represents significant and successful developments
in central bank operations in the 1990s.
May 1997
Economic models and policy-making
(46k)
By John Whitley
Describes and evaluates the role of macroeconomic models at
the Bank of England in the process of policy advice.
February 1997
Evolution of the monetary framework
(25k)
Lecture given by the Governor at Loughborough University
Reviews developments in the monetary policy framework since
the first Loughborough Lecture on financial change and broad
money, given by Robin Leigh-Pemberton ten years ago.
February 1997
Britain's regional economies: how different are they, and how
should those differences affect monetary policy?
(85k)
A lecture by the Deputy Governor at Darlington
Considers the degree to which the United Kingdom's regional
economies differ, in economic terms and what implications this
has for monetary policy.
November 1996
How should central banks reduce inflation? - conceptual issues
(131k)
Paper by Mervyn King prepared for the symposium on 'Achieving
Price Stability' sponsored by the Federal Reserve Bank of Kansas
City
Discusses how quickly a central bank should reduce inflation
to its desired level following an inflationary episode.
August 1996
Simple monetary policy rules
(51k)
By Alison Stuart
This article describes two simple rules, the McCallum rule and
the Taylor rule, that could in principle be used to guide monetary
policy. It then applies the rules to past UK data.
February 1996
Central bank independence and accountability: theory and evidence
(33k)
By Clive Briault, Andrew Haldane and Mervyn King
How accountability relates to central bank independence. Why
central banks should be accountable and how accountability and
transparency can help to reduce the inflation bias which might
otherwise result from discretionary policy-making.
November 1995
Do inflation targets work?
(14k)
Speech by Mervyn King to the Centre for Economic Policy Research
Looks at the growing use of inflation targets. Considers what
their use may achieve; what has so far been achieved; and how
in the future they may help in the setting of monetary policy.
August 1995
Inflation targets
(44k)
By Andrew Haldane
Summarises a number of the main issues - both conceptual and
technical - raised by the use of inflation targets, which were
discussed at Bank conference on inflation targeting.
February 1995
Credibility and monetary policy: theory and evidence
(53k)
Lecture by Mervyn King in the first annual Scottish Economic
Society / Royal Bank of Scotland lecture in Edinburgh
Looks at the concept of credibility in monetary policy, why
it is important and how it can be measured.
November 1992
The case for price stability
(947k)
Inaugural LSE Bank of England lecture by Robin Leigh-Pemberton,
Governor of the Bank of England
Discussion of case for price stability. Price stability will
only be achieved if the policies aimed at this objective are
credible. Introduces new regime and commitment to publishing
Inflation Report.
