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Then and Now
from V - Lessons for Central Bank Independence
Published online by Cambridge University Press: 14 November 2024
One of the enormous contributions of the Monetary Policy Committee is simply to make interest rate decisions a systematic process reflecting the needs of the economy. Over 25 years, the MPC has, I think, proved a great success in institutional reform. Inflation averaged close to the 2% target, at least until 2021. People accepted that this was a good way of making technocratic judgements to meet a target set by Parliament. This chapter offers five lessons for the continuing conduct of monetary policy. Inflation targeting is a way of living not a theory of the monetary transmission mechanism; money matters; set policy in the world not in a model; abandon point forecasts and finally understand the real equilibrium or disequilibrium of the economy
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