[The Economist's] The Bank of England: The return of sado-monetarism? (1998)

출처: The Economist, Sep 10th 1998

자료: http://www.economist.com/node/164630

※ 발췌 (excerpts): 

Calls to change the guidelines under which the Bank of England sets interest rates are misguided.

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( ... ) At the heart of the complaints is the claim that the Bank has been told to pursue the wrong target. The MPC is supposed to set interest rates so as to meet an inflation target of 2.5%, which was set by Gordon Brown, the chancellor. But critics argue that the Bank should instead be forced to take account of growth and jobs as well as inflation. This theme is sure to loom large at next week's annual meeting of the Trades Union Congress.

However, the idea that the Bank focuses solely on inflation at the expense of the real economy is based on some misunderstandings. First, it is a fallacy to argue that a low inflation target permanently chokes economic growth. Both economic theory and experience show that there is no long-run trade-off between inflation and output: a looser monetary policy cannot lead to a permanent increase in output and jobs, it will only cause ever-rising inflation—and hence boom and bust.

Thus an inflation target does not reflect cruel indifference towards unemployment; it merely recognises that monetary policy affects only inflation in the long term, and so inflation, not output, is the only sensible goal of monetary policy. There is no evidence that countries with low inflation have higher unemployment. Indeed, by aiming for low inflation a central bank can help to provide the best foundation for investment and growth.

Moreover, contrary to popular wisdom, an inflation target helps to stabilise growth: rates are raised if the economy risks overheating and cut if inflation falls too low. For instance, Sweden was the first central bank in the world to adopt an inflation target, in the early 1930s. As a result, it avoided the worst of deflation and depression.

Second, it is true that there is a trade-off between inflation and growth in the short term, but even here it is wrong to claim that by pursuing an inflation target the Bank of England ignores growth. For one thing, the Bank takes account of a wide range of economic and financial indicators, including growth, employment, and the strength of sterling, in making its inflation forecasts.

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A third common mistake is that the Bank's critics claim that America's Federal Reserve and Germany's Bundesbank pay much more attention to growth. It is true that neither has an explicit inflation target, but the Bundesbank's prime goal is undoubtedly price stability. In recent decades, Germany has had lower average inflation than Britain and faster average growth—hardly suggesting that the Bundesbank's tough policies have held back growth. What is true is that with its long track record, the Bundesbank is able to tolerate occasional deviations from price stability without undermining its credibility. The Bank of England, however, has yet to win its spurs, and so cannot be so relaxed.

The critics of the Bank make much of the fact that under the Humphrey-Hawkins Act of 1978, America's Fed is supposed to worry about both inflation and employment. But in practice, inflation takes priority; the Fed aims for the highest level of economic activity consistent with low inflation. This is more or less what the Bank of England is now doing. The reason why the Fed has not increased interest rates over the past year is not because it is more tolerant of inflation, as some claim, but because inflation in America has fallen (to 1.7% in July), not risen as in Britain (to 3.5%).

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