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Blanchflower Fires Both Barrels

David Blanchflower has fired both barrels at the Bank of England Monetary Policy Committee in a new column for the Independent. He finds Sir Mervyn King and his team to be poor value for money:

The Bank of England is packed full of economists paid out of the public purse, and the public is entitled to value for its money and it hasn’t had it. To this point, there has been no official inquiry into why their overly optimistic forecasts on growth and inflation have been worse than the proverbial monkey throwing darts at a wall. The MPC’s forecasts are aspiring to be hopeless; downward revision of the growth forecast has followed downward revision; upward revision of the inflation forecast has followed upward revision.

Above all, a review is needed because the Bank appears to be repeating the same mistakes that were made in the run-up to the recession, which is hardly surprising given that all the same people remain in charge. Why? The forecasts are ultimately the responsibility of two officials who have been in charge since July 2008: Charlie Bean, the Deputy Governor for Monetary Policy, who was previously the chief economist, and Spencer Dale, the current chief economist. It’s hard to lead a team whose morale I gather is at rock bottom, when you have been consistently wrong. Bean and Dale’s terms should not be renewed.

Go Danny!  Blanchflower was the only real MPC dove when it mattered in 2008 – voting for rate cuts in every single month of the year, and for faster rate cuts in the first two months of 2009.  The rest of the committee was strongly consensual, voting as a block, with the minor exception of Tim Besley who voted for rate rises in both July and August of 2008.

But the line of argument is slightly odd – perhaps because it has been simplified for a mainstream audience?  Under inflation targeting, forecast-targeting, we must not simply judge the MPC’s forecasts against later outturns, which seems to be what Blanchflower expects.  The MPC cannot be expected to correctly predict oil prices or changes to indirect taxes; the markets will not do that either.

Indeed, that expectation contradicts Blanchflower’s own voting record: why else vote for rate cuts when current inflation is above target?  If the MPC’s task is to stabilise the inflation forecast, we can judge them on that front alone.

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Categories: Monetary Policy
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