Mervyn King on Tailwinds and Headwinds

Wednesday, February 10, 2010

Mervyn King delivers the latest Inflation Report from the Bank of England and focuses on the strength of two forces:

1/ The tailwind of the policy stimulus from monetary and fiscal policy
2/ The headwind of the continued deleveraging in the financial system

It is a good analogy to use and one that students should be able to latch onto as they grapple with their macroeconomics.

This BBC news video provides a good overview of the Bank’s current thinking. In it the Governor explains why the Bank will - for the third time - expects to write to the Chancellor to explain an inflation overshoot. And he comes out with a good quote “Monetary policy can do little to affect short-term changes in inflation” ....... instead it has more leverage on the growth of total spending in the economy which (relative to the supply-side capacity of the economy) affects demand-pull inflationary pressures during the economic cycle.

Posted to A2 Macro • AS Macro • Credit Crunch • Cycles and Shocks • Aggregate Demand • Inflation • Macroeconomic Policies • Monetary Policy • Recession Watch! • Teaching of Economics • UK Economy
Tags: inflation, demand, supply, capacity, banks, spare capacity, monetary policy, mervyn king, demand-pull inflation
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The power of words…

Thursday, November 12, 2009

by Mo Tanweer

Some say that “words have meaning and names have power”. Well when Mervyn King speaks, markets listen. And sell the pound too.

King and Chancellor at odds over intervention

Wednesday, June 17, 2009

by Penny Brooks

Both the Chancellor of the Exchequer and the Governor of the Bank of England gave their Mansion House speeches to the City yesterday, and both addressed the issue of regulation of the banking system. But while the Chancellor emphasised that he had no plans to fundamentally change the regulation system, the Governor called for more powers for the Bank to intervene and prevent excessive risk taking. This is at odds with the approach outlined by Alastair Darling, who referred instead to encouraging a change of management culture in the banks which would encourage bankers to manage themselves more effectively, being “rewarded for long-term success, not for failure”. He seems to suggest that the solution lies more in ensuring that banks are led by Boards of Directors with “the right people of the right skills and the right experience …. and they need to be equipped to ask the right questions.” He also called for an end to short-termism: “Their focus must be on long-term wealth creation and not short-term profits.”

The Governor makes a stand

Tuesday, March 24, 2009

by Geoff Riley

Sailing very close to what is allowed under the terms of Bank of England independence, the Governor of the Bank Mervyn King has made a dramatic statement about how much scope the government has to launch a fresh fiscal stimulus when the delayed Budget is announced on the 22nd of April.

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