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Monetary misconceptions

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  • Buiter, Willem H.

Abstract

The paper identifies a number of misconceptions about the monetary policy process and the monetary transmission mechanism in the UK. Among the misconceptions about the process are the alleged lack of regional and sectoral representativeness of the Monetary Policy Committee and the view that operational central bank independence means that monetary and fiscal policy are not properly coordinated. Among the transmission mechanism misconceptions, the "New Paradigm" figures prominently. Among the New Paradigm changes in the British economy that have been given prominence are the following: increasing openness; lower global inflation; lower profit margins, reflecting stronger competitive pressures; buoyant stock markets; a lower natural rate of unemployment; and a higher trend rate of growth of productivity. I argue that the New Paradigm has been over-hyped and misunderstood as regards its implications for monetary policy. Other misconceptions include the ''death of inflation'', the ''end of boom and bust'', a couple of Neanderthal Keynesian fallacies and the monetary fine tuning fallacy.

Suggested Citation

  • Buiter, Willem H., 2000. "Monetary misconceptions," LSE Research Online Documents on Economics 20168, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:20168
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    File URL: http://eprints.lse.ac.uk/20168/
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    References listed on IDEAS

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    1. Robert E. Hall, 2001. "The Stock Market and Capital Accumulation," American Economic Review, American Economic Association, vol. 91(5), pages 1185-1202, December.
    2. Buiter, Willem H. & Panigirtzoglou, Nikolaos, 1999. "Liquidity Traps: How to Avoid Them and How to Escape Them," CEPR Discussion Papers 2203, C.E.P.R. Discussion Papers.
    3. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    4. Michael D. Bordo & Barry Eichengreen & Douglas A. Irwin, 1999. "Is Globalization Today Really Different than Globalization a Hunderd Years Ago?," NBER Working Papers 7195, National Bureau of Economic Research, Inc.
    5. Buiter, Willem H, 1997. "The Economic Case for Monetary Union in the European Union," Review of International Economics, Wiley Blackwell, vol. 5(4), pages 10-35, Supplemen.
    6. Michael D. Bordo & Barry Eichengreen & Jongwoo Kim, 1998. "Was There Really an Earlier Period of International Financial Integration Comparable to Today?," NBER Working Papers 6738, National Bureau of Economic Research, Inc.
    7. Buiter, Willem H & Jewitt, Ian, 1981. "Staggered Wage Setting with Real Wage Relativities: Variations on a Theme of Taylor," The Manchester School of Economic & Social Studies, University of Manchester, vol. 49(3), pages 211-228, September.
    8. Nickell, Stephen & Nunziata, Luca, 2000. "Employment patterns in OECD countries," LSE Research Online Documents on Economics 20198, London School of Economics and Political Science, LSE Library.
    9. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
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    More about this item

    Keywords

    Monetary policy; inflation targeting; New Paradigm; stabilisation policy;

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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