When Central Banks Change Focus

The Evening Standard (London, England), December 17, 2012 | Go to article overview

When Central Banks Change Focus


Byline: Hamish McRae

IS central banking about to make another of its once-in-a-generation shifts in direction, this time away from focusing on inflation? The question arises because three of the world's main central banks are changing their objectives. One has already done so; the European Central Bank, under its Italian president Mario Draghi, has, in effect, shifted its principal aim from keeping inflation under 2% to saving the euro. As he put it, "we will do whatever it takes", which as he then demonstrated included the commitment to buy the sovereign debt of distressed eurozone members.

The second change was announced last week in a speech by Ben Bernanke, chairman of the Federal Reserve Board in the US. He said it was likely that the Fed would keep official rates near zero as long as unemployment remained above 6.5%, inflation was projected to remain below 2.5%, and inflation expectations remained contained.

He did qualify this: "Let me emphasise, that the 6.5% threshold... should not be interpreted as the committee's longer-term objective for unemployment."

But as far as I recall, this is the first time a major central bank anywhere in the world has included an unemployment target as a guide to policy. The third example of a change in objectives has not yet happened but the probability has increased since the Bank of England's new Governor was named. Mark Carney does not arrive until the summer but already his every word is being dissected to see if there might be some guide to future policy. So when, speaking in Toronto last week, he pondered whether central banks might drop inflation targets in favour of a target for nominal GDP, this set things moving. George Osborne gave the story legs when he said he was glad Carney had raised the prospect of switching away from inflation targets towards targets which focused more on growth.

The idea of a money GDP target is not new. It was implicit in the money-supply targeting adopted by the British authorities during the Eighties as away to control inflation, before we switched to an inflation target. Thus, targeting inflation only has a 20-year history and though it has been core to the ECB, the US has never had an explicit target.

In the UK, some sort of revision is clearly necessary for two reasons. First, it did not prevent the Bank of England making the huge policy error of fuelling the most serious property bubble that has ever occurred in the UK. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

When Central Banks Change Focus
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.