The next Governor of The Bank of England Mark Carney has raised the possibility that The MPC might target GNP rather than inflation.
Carney in one of his final speeches at The Bank of Canada, implies that Central banks should be prepared to ditch inflation targets in the event of sluggish growth and instead set themselves the task of raising national output.
It remains to be seen if this becomes a break with the 2% inflation target, which has been a feature of UK monetary policy over the last 15 years. Carney might be signalling a new approach to break the economic logjam.
It is worth considering the pros and cons of a shift in the focus of UK macroeconomic policy, the impact on expectations and economic behaviour.
On December 14th The BBC's Economics Correspondent, Stephanie Flanders weighs up the arguments and points out that critics point out that a change of target, might mean "that the Bank of England would be giving the mistaken impression that it can control economic growth when it can't." It could also mean that growth was being encouraged with little regard to the inflationary impact on the macroeconomy.
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