22 Jan 2015
Monetary Policy Cannot Be Expected To Achieve Price Stability In Isolation – BOE Miles
FXStreet (Mumbai) - Bank of England (BoE) Monetary Policy Committee (MPC) member Professor David Miles in his speech "What Can Monetary Policy Do?" at the University of Edinburgh, elaborated on the strengths and limitations of monetary policy.
His arguments on inflation expectations,
"One should not expect a central bank to be fully able to offset the impacts of such huge swings in commodity prices on current inflation...this is why having a flexible inflation target which…allows policy to be set so as to return it to target over several quarters...makes sense,
On Monetary policy,
Miles argued, "lot more than is implied by many economic models". By influencing short term spending decisions through cash flow effects, the influence of monetary policy extends beyond its impact on expectations.
On importance of fiscal policy,
"monetary policy cannot be expected to achieve price stability in isolation from things fiscal, monetary policy has fiscal consequences and unless fiscal policy is set in a way which is consistent with the aim of monetary policy, those aims will not be met."
He further added, "Flexible inflation targeting is not inconsistent with attaching significant weight to short term fluctuations in output and employment,"
He concluded,
"Either those other targets are consistent with an inflation target – in which case achieving the inflation target is likely to require that output and employment over the medium term do not drift away from them – or they are not. If they are consistent then there is nothing much to be gained by adding them to the inflation target."
His arguments on inflation expectations,
"One should not expect a central bank to be fully able to offset the impacts of such huge swings in commodity prices on current inflation...this is why having a flexible inflation target which…allows policy to be set so as to return it to target over several quarters...makes sense,
On Monetary policy,
Miles argued, "lot more than is implied by many economic models". By influencing short term spending decisions through cash flow effects, the influence of monetary policy extends beyond its impact on expectations.
On importance of fiscal policy,
"monetary policy cannot be expected to achieve price stability in isolation from things fiscal, monetary policy has fiscal consequences and unless fiscal policy is set in a way which is consistent with the aim of monetary policy, those aims will not be met."
He further added, "Flexible inflation targeting is not inconsistent with attaching significant weight to short term fluctuations in output and employment,"
He concluded,
"Either those other targets are consistent with an inflation target – in which case achieving the inflation target is likely to require that output and employment over the medium term do not drift away from them – or they are not. If they are consistent then there is nothing much to be gained by adding them to the inflation target."