HSBC’s chief economist is calling for price-level targeting in a bid to avoid Japanese-style stagnation. Stephen King says central bankers have not been unconventional enough, and that with huge private sector debts, “the threat of a debt-deflation trap is on the rise”.
There is a strong case for abandoning inflation targets altogether and replacing them with price-level targets. Central bankers claim this reform would make little difference but, as we argue, at least it would force them to maintain zero rates well into the recovery, avoiding the exit strategy confusion seen in the first half of 2010. In a world of excessively low inflation, it is important to persuade the public that interest rates won’t rise until the spectre of deflation is completely eradicated.
- Stephen King in a research note entitled An unconventional truth
The normal laws of cause and effect, he argues, have been suspended: Read more
Martin Weale, the new boy on the Monetary Policy Committee, has just finished giving evidence to the Treasury Select Committee on his recent appointment. He was safe and boring. Bank of England officials appeared delighted with his performance.
Chris Giles
Michael Steen
Robin Harding
Ralph Atkins
Claire Jones
