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.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.