Inflation Targeting Monetary Policy in the UK in 1992-1997: Was It Successful?

Expansion of international economic integration requires each country to decide the appropriate monetary policy. This means that the financial authorities manage money supply or interest rates (Lipsey and Crystal, 2007). Its main purpose is to provide economic stability and growth. The mechanism that brings about changes in such monetary policy is called the Currency Transfer Mechanism (MTM). Therefore, the purpose of this white paper is to examine and analyze the role of MTM in solving macroeconomic problems.

In the UK and the United States, monetary policy is the most important means to maintain low inflation. In the UK, monetary policy is set by the Bank of England's Monetary Policy Committee. They have been given inflation targets from the government. The inflation target is 2% + - - 1 and the MPC will use the interest rate to achieve this goal. As with monetary policy, this is another policy on the demand side. Fiscal policy involves changing the level of taxes and spending as the government affects the aggregate demand level. In order to reduce inflationary pressures, the government can reduce tax increases and government expenditures. This will reduce AD

Since 1992, the Bank of England has achieved inflation targets. Since 1997, the Bank of England has achieved business independence. Since January 2000, the UK 's Monetary Policy Committee met monthly to decide monetary policy. At the end of each meeting, the policy rate decision will be announced at the UK banking website at 12 o'clock. First or second Thursday of every month. Beginning March 5, 2009, in addition to setting the bank interest rate, the monetary policy committee set the asset level target funded by central bank reserves. The Bank of England provides information on current and anticipated economic conditions in separate press releases. The Bank of England inflation report is published four times a year and will be announced at 10:30 am on the second Wednesday in November, August, May and February. Important differences in the implementation of monetary policy

Svensson (1997) proposed a monetary policy goal to help select the exchange rate and inflation target. In the long run, currency police can manage inflation rates and exchange rates. In the short term, monetary policy may adversely affect inflation. Central banks manage exchange rates and nominal exchange rates, so there is no essential meaning for welfare and economic growth. The choice between exchange rate objectives and clear inflation goals should be viewed as a choice between various intermediate objectives to achieve monetary policy objectives. Monetary policy can not prevent this real exchange rate fluctuation. However, the negative impact of this fluctuation can be minimized by the inflation target.