Criticisms of The MPC approach
- An inflation target is not enough. If the MPC just targets inflation this may lead to lower growth or higher unemployment
- If there are shocks to the economy such as higher oil prices this may increase inflation, keeping it in the target may cause a recession.
- Fine Control of Monetary Policy is not possible. It is difficult to get accurate information about the economy. Time lags in policy mean interest rates affect the economy too late
- The MPC is not truly independent, govt can set target and appoint people
- The MPC does not truly reflect the economy. Members tend to be academic economists or bankers, but not business men or trades unions.
- The low inflation since ’97 could be due to other factors such as increasing productivity and low world wide inflation
Benefits of the MPC Inflation Approach
- The MPC have been successful in keeping RPIX close to its target. Growth has been reasonably strong and unemployment has fallen since ‘97
- Low inflation is important for ensuring stable and continuous growth
- The govt could always change the target if there was a shock to the economy.
The benefits of professional economists are that they take decisions out of vested interest groups such as T unions and businessmen.