Download the full paper here: https://iea.org.uk/publications/44943/ In this new IEA Briefing, Communications Manager Reem Ibrahim sits down with independent economist Damian Pudner to discuss the new IEA paper "Rethinking Monetary Policy." Pudner explains why the Bank of England's current 2% inflation targeting system fails to provide a balanced approach during supply shocks like the COVID-19 pandemic, forcing interest rate hikes that exacerbated the cost of living crisis while hampering economic growth and recovery.
Pudner presents a compelling alternative: nominal GDP targeting, which would require the Bank of England to consider both inflation and economic growth simultaneously. This more holistic approach could prevent unnecessary interest rate increases during supply shocks, giving businesses more stability and breathing room to invest and recover. Using examples like Scott Sumner's nominal GDP futures contracts, Pudner outlines practical implementation methods that align with free market principles while potentially delivering the current government's "growth, growth, growth" mission.
With historical context showing that monetary policy regimes typically evolve over time, Pudner argues the Bank of England has an opportunity to lead monetary innovation as it did in the early 1990s with inflation targeting. Discover why this shift could create a more stable macroeconomic environment and how it might reshape Britain's economic landscape. Read Pudner's complete paper "Rethinking Monetary Policy" at iea.org.uk and learn more about the IEA's work at insider.iea.org.uk.
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