Research proposal on Monetary policy impact on inflation in UK
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The United Kingdom began inflation targeting in late 1992, and it may be useful to review some historical background. After the break-up of the Bretton Woods system in the early-1970s, the United Kingdom had a floating exchange rate and an unstable but increasing rate of inflation, which reached over 25 per cent in 1975. It became clear that serious errors had been made in the conduct of monetary policy in the early-1970s, based on the mistaken belief that there was a stable trade-off between unemployment and inflation-in other words, a stable Phillips curve. It also became increasingly widely understood that the control of inflation was a necessary pre-condition for the achievement of other economic policy objectives, and therefore had to be assigned top priority among policy objectives (Allen & Dickinson 2002). The fall in the rate of inflation has not been steady or continuous. There have been a number of crises, and a number of different monetary policy techniques have been used. Inflation targeting is the latest of them, adopted after the United Kingdom left the European Exchange Rate Mechanism, and it has been the longest-lasting. The procedures of inflation targeting are still evolving in the light of continuous learning through experience. Inflation targeting is based on the assumption that low inflation is the single proper objective of monetary policy. That assumption is based, in the United Kingdom, on the unhappy experience of trying to pursue other objectives with monetary policy. Nevertheless, there have been some complaints in the United Kingdom that the fact that the central bank is pursuing an inflation target means that it is not concerned about output and employment (Angeloni, Kashyap & Mojon 2003). This paper is a proposal to create a study on monetary policy impact on inflation in UK.
Aims and objectives
- Understand the monetary policy of UK
- Know the changes done to UK’s monetary policy.
- Analyze the occurrence of inflation in the UK.
- Know the cause of changes in the UK inflation.
- Determine the impact of monetary policy in the UK inflation.
Some critics have claimed that the fact that inflation targeting is logically reliant on forecasting represents a weakness of the technique, because forecasts are inherently unreliable. That is a misconception. Any monetary policy technique has to take account of the fact that policy changes made now do not affect inflation until sometime in the future. Indeed, most economic policy instruments have their effect only after a time delay. Inflation targeting requires a forecast of inflation and an estimate of how inflation is likely to be affected by changes in monetary policy instruments (Colander & Daane 2003). The pursuit of low inflation by means of any technique requires the same things. For example, the use of monetary targets has to be based on an assumption about the relationship between current monetary growth and future inflation-and if the policy instrument is interest rates a further assumption is needed about the relationship between current interest rates and future monetary growth. The difference in this respect between inflation targeting and monetary targeting is not that inflation targeting makes forecasts necessary, but rather that inflation targeting makes the need for forecasts explicit rather than implicit. There has been less difference between inflation targeting and monetary targeting than might be imagined. It became evident that the assumed relationships between interest rates and the target monetary aggregate, and between the target monetary aggregate and inflation, are not completely stable and predictable. The differences between inflation targeting and exchange rate targeting are greater than the differences between inflation targeting and monetary targeting. Of course, it is true that exchange rate targeting makes sense only if there is a predictable relationship between the exchange rate and future inflation, just as in the case of monetary targeting. But not every country can pursue an exchange rate target. Somewhere there has to be a so-called anchor currency country which sets a standard by using a different monetary policy technique-and in an important sense countries which target their exchange rates against the anchor currency are borrowing that country's monetary policy technique and its monetary policy credibility (Cobham 2002).
The proposed study will use a mix of qualitative and quantitative method to allow for better understanding of the performance based post occupancy evaluation of institutional buildings. Use of a mixed-method approach can make the results more presentable to a hostile audience or in using quantitative work to back up qualitative work. This can be useful where there are concerns about getting a qualitative proposal past a quantitative panel, or getting results of largely qualitative work published in a more traditionally quantitative journal. From the standpoint of those who choose quantitative methods using qualitative methods means debasing psychology as a science. From the standpoint of those using predominantly qualitative methods those who adhere to the quantitative camp devaluate the human being which should be at the centre of psychology as a discipline (Darlington & Scott 2002).
Allen, WA & Dickinson, DG (eds.) 2002, Monetary policy, Capital
flows and exchange rates: Essays in Honor of Maxwell Fry,
Angeloni, I, Kashyap, AK & Mojon, B (eds.) 2003, Monetary
policy transmission in the Euro area: A study by the Eurosystem
monetary transmission network, Cambridge University Press,
Cobham, D 2002, The making of monetary policy in the UK, 1975-
2000, John Wiley & Sons, New York.
Colander, DC & Daane, D (eds.) 2003, The art of monetary policy,
M. E. Sharpe, Armonk, NY.
Darlington, Y & Scott, D 2002, Qualitative research in practice:
Stories from the field, Allen & Unwin, Crows Nest, N.S.W.
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