LONDON (MNI) – The fact that the Bank of England Monetary Policy
Committee pursues an explicit inflation target does not force it to
pursue more aggressive policies than the US Federal Reserve, a BOE
working paper finds.
There has been a long running debate over the pros and cons of
inflation targeting regime. The BOE, unlike the Fed, has an explicit
target, of 2.0% on CPI, but the paper finds no evidence that this forces
it to pursue tougher anti-inflation policies than its US counterpart.
“There is no evidence to suggest that the Bank of England’s
inflation target has compelled it to be more aggressive in pursuit of
low inflation than the Federal Reserve,” the working paper, by MPC
member Adam Posen and Kenneth Kuttner finds.
The paper notes that despite having an explicit inflation target,
the MPC has overshot its inflation target for three years.
“Given that IT (inflation targeting) seems not to have imposed an
inflexible commitment on the Bank of England, it is tempting to ask if
it is too flexible,” the paper says.
It adds, however, that one alternative, price level targeting,
would have the (apparently perverse) effect of forcing the MPC to drive
inflation below its 2.0% target during a time of economic weakness.
–London newsroom 0044 20 7862 7491; email: drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
