(Reuters) - Inflation targeting has served the Bank of England well and should be kept as its main policy tool, despite the strategy's role in fuelling a credit bubble that triggered the financial crisis, a Reuters poll of economists found.
HAS BOE INFLATION TARGETING SERVED THE UK WELL?
DANIELLE HARALAMBOUS, UK ECONOMIST, 4CAST
"Yes - much more successfully than the UK's experiences with monetary targeting and (briefly) exchange rate targeting."
"Inflation targeting coincided with a period of stability up until 2008, but the subsequent overshoot can be forgiven; the BoE's policy remit allows for the impact of shocks/disturbances under which circumstances adherence to the target can be relaxed if it might otherwise cause 'undesirable volatility in output'."
STEPHEN LEWIS, CHIEF ECONOMIST, MONUMENT SECURITIES
"Inflation targeting failed to take account of the distortion of asset values and excessive credit creation in the years up to the crisis. It is a blinkered approach to policymaking."
BRIAN HILLIARD, CHIEF UK ECONOMIST, SOCIETE GENERALE
"The Bank should have taken more account of systemic issues but another macro target would not have helped prevent the crisis."
PHILIP SHAW, CHIEF ECONOMIST, INVESTEC
"Inflation targeting has served the UK well over the past 20 years but failed to address the various imbalances in the economy during the early half of the 2000s."
"Hence we favour the greater use of macroprudential policy to prevent the build-up of potentially destabilising financial pressures."
"Beyond that our view is that expectations on what an inflation target, or any other target can achieve, are often over ambitious. Under certain circumstances it is possible to see how a price level target or a nominal GDP growth target might have its uses."
"But simple targets do not on their own deliver recoveries or economic stability, and in any case, the MPC has been adopting a flexible approach to meeting the CPI target."
"We therefore see the excitement around the current debate to be overdone. In terms of the overall regime our preferred strategy would be a flexible inflation target, coupled with sensible and clear macroprudential regulations."
PETER DIXON, ECONOMIST, COMMERZBANK
"The inflation target was in part the result of a desire on the part of economists to produce a simple rule which is transparent and readily accessible to all. But adherence to the target perhaps blinded the Bank to the message implied by the monetary aggregates."
"In any event, low inflation was more the result of general global conditions than anything the Bank was able to achieve."
"So whilst it served a useful purpose the target may not, in retrospect, have been appropriate for the conditions prevailing at the time, in which asset price inflation was a bigger problem."
ON WHETHER UK SHOULD ABANDON INFLATION TARGETING
DAVID KERN, CHIEF ECONOMIST, BRITISH CHAMBERS OF COMMERCE
"Stick with an inflation target, but modify it. Be more explicit about the flexibility that is allowed in the timing needed when aiming to reach the inflation target. Also, be more explicit about growth and employment policy aims, and about the need to encourage productive lending in the economy."
"Acknowledge in a more transparent way the tensions between the dual aims of low inflation and financial stability. But do not move to a nominal GDP target."
STEPHEN LEWIS, CHIEF ECONOMIST, MONUMENT SECURITIES
"The Bank of England should set an inflation goal, a rate it regards as consistent with price stability, but should take account of a much wider range of variables when deciding on monetary policy."
PETER DIXON, EUROPE ECONOMIST, COMMERZBANK
"Despite my scepticism about the current regime, inflation targeting should not be abandoned altogether."
"Price stability remains one of the core functions of a central bank and having spent the last 21 years extolling the virtues of an inflation target there is a major credibility issue associated with junking it in favour of something else."
ON PREFERRED ALTERNATIVE IF INFLATION TARGETING IS ABANDONED
PETER DIXON, EUROPE ECONOMIST, COMMERZBANK
"If I had to choose at gunpoint, I would go for a Fed-style mandate, which at least has the advantage (or did) of being more opaque than the BoE inflation target."
"But we need to be clear that no target will always and everywhere be appropriate for prevailing conditions, so markets and media perhaps need to be less reactive to deviations than they have been in the past."
(Reporting by Rahul Karunakar; Editing by Catherine Evans)
Source: http://news.yahoo.com/boes-inflation-targeting-serves-uk-well-poll-152750210--finance.html
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