Monthly Archives: January 2013

Chris Giles

Last week, the International Monetary Fund published a working paper by Olivier Blanchard and Daniel Leigh revisiting the estimates of the effect of austerity that caused such a stir in the October World Economic Outlook. Many people took the box in the WEO as proof of the absurdity in attempts at deficit reduction.

At the time, I published an article and a technical blog in the FT, casting some doubt on the robustness of the IMF’s work. It also caused a minor stir. I included all the data so people could play around with the numbers themselves if they wished.

In December, another part of the IMF published a working paper using different methodology, which found much smaller multipliers. It is not the first time that different parts of the fund disagree. It will not be the last.

What does the new working paper say and what conclusions should we draw?

 

Bank of England. Getty Images

Last October, the UK passed the 20th anniversary of inflation targeting. There have been a couple of slight adjustments to the target – in 1997 and 2004, but since 1992 the UK has benefited from a remarkable degree of consistency in its monetary policy framework.

We have to go back to before the first world war – under the Gold Standard – to find such a long period of stability in UK monetary policy. Since then, the only other period that comes close was 1949-67, when the value of the pound was pegged at $2.80 against the dollar.

 

Claire Jones

If Bank of England governor-designate Mark Carney was looking to spark debate, then his call for the UK to scrap its inflation target (should meaningful growth continue to elude the UK) has done the job.

The FT’s economics editor Chris Giles and economics correspondent Sarah O’Connor write in today’s paper that Mr Carney’s call has divided economists in this year’s FT poll.

Those in favour of sticking with the status quo — 45 per cent — outnumber those calling for a shift to a new regime — 35 per cent. (And not all of those in favour of a switch back Mr Carney’s calls for central banks to target nominal GDP instead.) But in previous years, support from more than a handful of economists for the scrapping of the inflation target would have been unthinkable.

Interestingly, support for change is stronger than average among those who have had to work with inflation targeting: of the ten former MPC members that took part in the poll, five want to do away with the current regime, with the rest in favour of keeping it.