Working Paper No. 40
By Andrew G Haldane
This paper aims to juxtapose the theoretical and empirical literature on policy rules and targeting procedures alongside the United Kingdom's new monetary framework. For example, how does inflation targeting, as practised in the United Kingdom, compare with the optimal feedback rule for monetary policy? Or, conversely, how does it compare with Friedman's k% rule? Is an inflation target akin to an optimal central bank contract - an analogy drawn by Walsh (1995)? Or is it better characterised as giving rise to a (second-best) inflation-averse central bank - such as Rogoff's celebrated 'conservative' central banker?