BOE Should Use GDP Data to Set Monetary Policy, Institute Says

  • Adam Smith Institute wants to scrap Monetary Policy Committee
  • Report argues monetary policy should be set by system of rules

The Bank of England should tie monetary policy to the total amount of spending in the economy and quantitative easing should replace interest rates as its main tool, according to a new research report.

In a call to scrap the Monetary Policy Committee and eventually remove the central bank’s power to set interest rates, the London-based Adam Smith Institute said the performance of nominal gross domestic product, which doesn’t strip out inflation, should become the focus of the Bank of England.

The idea is to set monetary policy by replacing the discretion of policy makers and their 2 percent inflation target with a system of rules. Private banks should eventually be handed powers to issue currency instead, the institute said.

“Whilst inflation targeting has been discredited, and all but abandoned, it has not been replaced by a coherent and consistent strategy,” said author Anthony J. Evans, who teaches at the ESCP Europe Business School. “This paper not only provides constructive advice on how to reform current policy, it places this in the context of a more comprehensive program for sound money.”

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