Bank of England Video on Money

Bank of England have a video about the usefulness of money. (would make a good video for my AS economics students) Pretty down to earth for the Bank of England.

“It would be pretty hard to buy a CD if you didn’t have any money”

Via: UK Economics

The bank have been given a target for Inflation of CPI 2% =/-1 Inflation does have many costs such as uncertainty, confusion and “Menu Costs”. Chancellor Norman Lamont famously said in 1991 or 1992

“Unemployment is a price well worth paying for lower inflation”. It caused a bit of a storm at the time, there were nearly 3 million people unemployed. However you could argue that since inflation has been reduced since the late 80s boom the UK has experienced a remarkably stable period of economic growth, consistent with low inflation. Maybe reducing inflation was a necessary evil. The MPC approach since then has to be pre emptive. I.e. reduce inflation before it becomes a real problem. The hope is that this makes it less painful to reduce.

However on the other hand Central bankers can sometimes get carried away by low inflation. For example in the 1990s the Japanese financial authorities still had concerns over inflation despite persistent deflation and a stagnant economy.