References (13)



Inflation and the Global Economy

Timothy J. Besley

London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Bank of England Quarterly Bulletin, Q2, 2008

In this speech, Professor Tim Besley, a member of the Monetary Policy Committee (MPC), discusses differences and similarities between inflation rates across industrialised economies. Most countries experienced high and volatile inflation during the 1970s and part of the 1980s, and low and stable inflation thereafter. Professor Besley argues that the main contrast between these two periods is a significant change in central bank responses to inflation. Periods of high and volatile inflation were associated with negative real interest rates (ie the policy rate adjusted for inflation) in nine industrialised economies, which can be interpreted as symptomatic of a relaxed monetary policy. The most recent period of low and stable inflation is characterised, in contrast, by positive real rates of interest. The experience of the past suggests that using monetary policy to support the economy in the face of negative productivity shocks had little success. Professor Besley concludes that monetary policy cannot (and should not, therefore, try to) prevent warranted real economy changes, taking place but it can perhaps smooth some of the adjustment in response to the real implications of the credit shock. The MPC will do its best to keep businesses' and households' inflation expectations anchored around the 2% target. This provides the best context to maintain the credibility of the framework that we have in the United Kingdom and allows monetary policy to play its part in maintaining the stability that is needed for households and businesses to plan for the long term.

Number of Pages in PDF File: 7

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Date posted: June 18, 2008  

Suggested Citation

Besley, Timothy J., Inflation and the Global Economy. Bank of England Quarterly Bulletin, Q2, 2008. Available at SSRN: https://ssrn.com/abstract=1147087

Contact Information

Timothy J. Besley (Contact Author)
London School of Economics & Political Science (LSE) - Department of Economics ( email )
Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 6702 (Phone)
+44 20 7955 6951 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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