Monetary Policy

SMPC repeats call for quantitative easing – February 2009


SUGGESTED ARTICLES

Press Release

State intervention in pension provision has been disastrous

Government and Institutions

Reform is needed in the old industrial and agricultural areas of 'New Europe'

Tax and Fiscal Policy

Further rate cuts would have little effect

https://iea.org.uk/wp-content/uploads/2016/07/upldrelease152pdfSummary.pdf
At its latest (13th January) meeting, the IEA’s Shadow Monetary Policy Committee (SMPC), a group of leading monetary economists that monitors developments in UK monetary policy, decided by six votes to three to hold interest rates at their current level of 1.5%.

While the three dissenting SMPC members unanimously favoured a further 0.5% cut in Bank Rate to 1%, most members of the shadow committee felt that further reductions in interest rates would have little effect on economic activity. Instead, they believed that direct action should be taken to ensure that a slump in the money supply does not cause depression. This direct action should take the form of what has come to be known as ‘quantitative easing’ – for example by the Bank of England creating money to buy bank assets.

Members recognised the dangers of quantitative easing – especially if the UK government started creating money to finance its huge budget deficit. The Committee were also concerned about the effect that quantitative easing would have on inflation expectations. It was therefore emphasised that any action to increase monetary growth directly should be reversed quickly, as soon as measures of monetary growth returned to levels consistent with avoiding serious economic difficulties. It was also stressed that the role of the inflation target should be re-emphasised. Members pointed out that quantitative easing should be used to prevent inflation falling below target and not to reflate the economy.

Read the full report here.



SIGN UP FOR IEA EMAILS