Bank of England Hints at Radical Growth Ideas
Senior Bank of England policymaker Charles Bean added his voice on Wednesday to skepticism about the idea of the central bank targeting a mix of inflation and growth but said it would be sensible to review the bank's policy framework.
The idea that central banks might consider targeting nominal gross domestic product hit the headlines late last year after Mark Carney, the next governor of the Bank of England, mentioned it in a speech.
Since then Carney has downplayed suggestions he will take what many economists consider a radical step and other British policymakers have said the central bank should stick to its focus on inflation.
In a speech, Bean said the Bank of England was already flexible when it came to its 2 percent inflation target.
Disadvantages of the nominal GDP approach included frequent revisions to the data and the complication of explaining the policy which might make it less effective at keeping inflation expectations under control, he said.
He also said there were risks implicit in nominal income targeting because it would keep very loose monetary policy in place even after an economy recovered.
"It is essentially one way of trying to hardwire in a commitment to maintaining a policy that remains loose long after conditions have normalized in order to generate the expectation of temporarily higher inflation in the future," he said.
Bean said the Bank of England should be open to new ideas given the sluggishness of the economy and, on the other hand, the persistent overshoot of inflation above its target.
"Given these fears, I think it is sensible to review the framework to assess whether it is fit for purpose or can be materially improved, though the hurdle for change should be high," he said.
"But there is a danger of expecting too much from monetary policy," Bean added.