Question

In: Economics

The Bank of England will prevent members of its interest rate-setting committee from publishing individual opinions...

The Bank of England will prevent members of its interest rate-setting committee from publishing individual opinions on the economy despite a review of its procedures calling for greater transparency. The Bank said a "collective forecast" will remain the centerpiece of the monetary policy committee's monthly reports, effectively barring members from explaining their views on the likely path of economic growth, inflation, and unemployment. Critics of the Bank's policy said the Bank's governor, Sir Mervyn King, had rejected proposals for the public to see a wider range of views because he wanted to maintain a stranglehold on the direction of policy...In response, the Bank said it agreed some procedures were opaque and there was a need for clear lines of responsibility, but said that criticism of the monetary policy committee, which King chairs, were largely unfounded. Explain why then-Bank of England Governor Mervyn King would want to prevent members of the monetary policy committee from stating their own views. Think about this within the context of inflationary expectations. Why then is the Bank of England calling for greater transparency?

Solutions

Expert Solution

Bank of England Governor Mervyn King would want to prevent members of the monetary policy committee from stating their own views because between august 1998 and April 1999, economy faced huge uncertainties. Fundamentally, many factors were responsible but important factor was interest rate. During this period monetary policy committee faced difference opinion regarding monetary interest rate and the difference exceeded more than 25 basis points. The most interesting fact was that maximum differences of view happened that time. From the inflation point of view angle, such a difference had a huge impact on the economy of England.

Since 1992, the transparency has been the focus point of the England monetary policy framework as inflation expectation has a direct relation with the decision of monetary policy committee. It first appeared in 1993 in terms of inflation report of the bank and second time boost by developed monetary policy committee where each member can freely present their views. In spite of that, economic uncertainty period had raised question regarding the role of marginal policy committee. The basic question was that is the published report disclose sufficient about views of each member. In addition, it also raised question why the committee failed to publish a route regarding the interest rate which is crucial to meet the targeted inflation rate. To give answers or resolve all the issues the Bank of England was calling for greater transparency.


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