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Voluntary and Involuntary Constraints on the Conduct of Macroeconomic Policy: An Application to the UK

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  • George Pantelopoulos
  • Martin Watts

Abstract

Modern Monetary Theory advocates make the distinction between voluntary and involuntary constraints with respect to operation of key institutions, such as the Central Bank and Treasury, in their conduct of macroeconomic policy. In this article we explore several episodes of UK policymaking, in order to demonstrate consistency regarding the policy coordination between HM Treasury and the Bank of England, and, in addition, highlight numerous voluntary constraints which by their very nature can be finessed when circumstances demand. In particular, we show that the use of the Ways and Means account on a number of notable occasions has meant that Government spending was not constrained by prospective tax receipts and sales of Government securities. Also, the introduction of non-convertible banknotes and other strategies, including the financing of the First War Loan, meant that the prevailing voluntary constraints were sidestepped.

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  • George Pantelopoulos & Martin Watts, 2021. "Voluntary and Involuntary Constraints on the Conduct of Macroeconomic Policy: An Application to the UK," Journal of Economic Issues, Taylor & Francis Journals, vol. 55(1), pages 225-245, January.
    • Handle: RePEc:mes:jeciss:v:55:y:2021:i:1:p:225-245
    DOI: 10.1080/00213624.2021.1877040
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    Cited by:

    1. Eli Direye & Tarron Khemraj, 2022. "Central bank securities and foreign exchange market intervention in a developing economy," Review of Development Economics, Wiley Blackwell, vol. 26(1), pages 280-297, February.
    2. Direye, Eli & Khemraj, Tarron, 2021. "Central bank securities and FX market intervention in a developing economy," MPRA Paper 111533, University Library of Munich, Germany, revised 09 Aug 2021.

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