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Monetarism in the 1980s

In: Inside Thatcher’s Monetarist Revolution

Author

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  • Gordon Pepper

    (City University Business School)

Abstract

A crisis in monetarism occurred early in the 1980s. The authorities had chosen to target broad money, more precisely sterling M3 (which included deposit accounts with banks as well as current accounts but excluded accounts denominated in foreign currency). In 1980–1 the target was missed by a large amount; sterling M3 grew by more than 18 per cent compared with the target of 7 per cent to 11 per cent.1 Worse still for the reputation of monetarism, the economy was in a recession that was obviously deepening and this suggested that monetary policy should be eased rather than tightened. In the event Geoffrey Howe ignored the behaviour of sterling M3 and reduced base rates. During the following year the target for sterling M3 was again overshot. Nigel Lawson subsequently introduced a target for M0 (the narrowest of the monetary aggregates) and switched between sterling M3 and M0. Later on, he abandoned monetary control and focused instead on sterling’s exchange rate.

Suggested Citation

  • Gordon Pepper, 1998. "Monetarism in the 1980s," Palgrave Macmillan Books, in: Inside Thatcher’s Monetarist Revolution, chapter 4, pages 37-44, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-333-99547-1_4
    DOI: 10.1007/978-0-333-99547-1_4
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