BoC Carney Proposes Changing Central Bank Targets from Inflation to GDP

Mark Carney, who will take over as governor of the Bank of England next year, has suggested targeting economic output instead of inflation.

At the moment, the Bank’s job is to aim for an inflation target of 2%.

Targeting gross domestic product (GDP) that has not been adjusted for inflation would mean the economy would have to catch up with previous shortfalls, Mr Carney said in a speech.

He said it might be a good option when interest rates were near zero.

Mr Carney is currently governor of the Bank of Canada.

He said one problem with changing the target would be that “people must generally understand what the central bank is doing – an admittedly high bar”.

It was his first speech since the unexpected announcement of his appointment to the Bank of England (BoE) top job.

Targeting the country’s economic output rather than inflation would be a major change to monetary policy, although it is not within the power of the Bank to change its target.

Targeting inflation has been a key plank of economic orthodoxy around the world for decades.

A central bank could make it clear how high inflation or unemployment would have to go before interest rates would be increased, he suggested.

via BBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza