The great moderation refers to a period of economic stability characterised by low inflation, positive economic growth, and the belief that the boom and bust cycle had been overcome. In retrospect, economists look back on the great moderation in a different light because although inflation was low, there was great volatility in financial markets and …
I like this article about the wrong kind of inflation by Roger Bootle Or as his cleaner said: “It’s not the inflation they need to sort out, Mr Bootle, it’s the rising prices!” Essentially, the wrong kind of inflation is cost-push inflation. This inflation is due to rising costs of production, such as rising energy …
The Bank of England has the task of setting base interest rates to try and meet the government’s inflation target of 2%. The base rate is the rate at which the commercial banks have to borrow from the Bank of England. The Bank manages the money supply so that commercial banks usually end up having …
The Bank of England was given autonomy to set interest rates in 1997. The government set the Monetary Policy Committee MPC a target of inflation – 2% For the period 1997-2008, the Bank helped preside over a long period of economic expansion. They avoided a boom and bust economic cycle – keeping inflation low. However, …
Readers Question: Hi and thanks for your article “UK Budget Deficit”. I am ‘new’ to economics, but trying to do my bit to get to understand it all. From your article I followed links and found the ”Pocket DataBank” published by the treasury. Being a bit retentive about things, I tend to learn by adding …
The amount of debt interest a government needs to pay depends on two factors: The amount of outstanding debt. The interest rate on government bonds. Higher bond yields will increase the cost of future borrowing. Note: There are quite a few different ways of measuring government debt / financial liabilities, therefore you may come across …
Readers Question: Would a devaluation help Greece? If you look at the Greek economy, their exchange rate has been effectively overvalued for several years. This overvalued exchange rate has caused Greek exports to be relatively uncompetitive and has caused various economics problems. Combined with efforts to tackle an unsustainable debt level, the over-valuation has contributed …
Readers Question: 1. I read somewhere that accommodative monetary policy (in other words, quantitative easing) does not automatically result in higher inflation. For higher inflation to occur, the output gap must be crossed. i.e. idle factories back in business, unemployment rates down, etc. However, I don’t think the hyperinflation in Zimbabwe was preceded by increasing …