Issues in Monetary Policy: The Relationship Between Money and the Financial Markets

Since the Bank of England was made independent in 1997，the conduct of monetary policy has been relatively uncontroversial.The debates between Keyneisans，monetarists and supporters of fixed exchange rate mechanisms now appear very distant.
　　Despite the apparent consensus there are many issues related to the conduct of monetary policy that are not yet settled and which will soon come to the fore.Is the current form of independence for the Bank of England appropriate？ Should a central bank target inflation or the prices level？ How does a central bank deal with asset price deflation？ Should more account be taken of monetary aggregates？ Should central banks target asset prices？ What is the relationship between the money supply and asset price inflation？ How should central banks ensure financial stability？
　　The IEA was at the forefront of changing the parameters of the debate surrounding monetary policy in the 1970s and 1980s.This text，brings together some of the leading authors in the field，including the current Governor of the Bank of England，to discuss current issues in monetary policy and the relationship between monetary policy and financial markets.It is appropriate for undergraduates and postgraduates in economics and finance as well as for practitioners in financial markets.

List of Contributors
1　ssues in Monetary Policy
　Kent Matthews and Philip Booth
　1.1 Introduction
　1.2 The monetarist counter-revolution
　1.3 Practice ahead of theory
　1.4 The dangers of practice without theory
　References
2　Monetary Policy：Practice Ahead of Theory
　Mervyn King
　2.1 Introduction
　2.2 What can monetary policy do？
　2.3 Learning and its implication for monetary policy
　2.4 Inflation targeting as a framework which accommodates learning
　2.5 Conclusion
　References
3　Are the Structure and Responsibilities of the Bank of England Optimal and
　If Not，Does It Matter？
　David B.Smith
　3.1 Introduction
　3.2 Current arrangements
　3.3 The conventional theoretical macro model（CTMM）
　　3.3.1 Role of interest rates in the CTMM
　 3.3.2 Time series considerations
　3.4 How the Bank’s main macro model constrained the monetary debate
　3.5 The new Bank of England quarterly model
　3.6 The monetarist case for a big central bank
　3.7 Lessons from Britain’s monetary history
　3.8 Main conclusions
　References
4　Why Price-Level Targeting is better than Inflation Targeting
　Andrew Lilico
　4.1　Introduction
　4.2　How do inflation targeting and price-level targeting differ？
　　4.2.1 Long-term price stability
　　4.2.2 Short-term inflation volatility
　　4.2.3 Output volatility
　4.3　What is there to gain from long-term price stability？
　4.4　Inflation volatility is not same thing as inflation uncertainty
　4.5　Price-level targeting generates its own credibility
　4.6　Price-level targeting is self-regulating
　4.7　Price-level targeting offers escape from a low-employment equilibrium
　4.8　The‘costs’of price-level targeting have corresponding benefits
　4.9　Price-level targeting vs.average inflation targeting
　4.10 The history of price-level targeting
　4.11 Conclusion
　References
5　A Price Targeting Regime Compared to a Non Price Targeting Regime.Is Price Stability a Good Idea？
　Keith Pilbeam
　5.1　Introduction
　5.2　The ultimate objective of economic policy
　5.3　Modeling economic shocks
　　5.3.1 Assumptions of the model
　5.4　The model
　5.5　Determining Equilibrium
　5.6　A money demand shock
　5.7　Aggregate demand shock
　5.8　An aggregate supply shock
　5.9　The search for an indicator
　5.10 Conclusions
　References
6 Optimal Monetary Policy with Endogenous Contracts：Is there a Case for Price-Level Targeting and Money Supply Control？
Patrick Minford
6.1　Introduction
6.2　Considerations in designing monetary policy arrangements
6.3　Monetary policy：Is inflation targeting the best we can do？
6.4　Interest rate control - what does it do？
6.5　Money supply targeting and feedback rules - a stochastic simulation analysis
6.5.1 Comparing money- and price-level targeting
6.5.2 Should we use interest rates rather than the money supply as the short-term instrument of control？
6.5.3 How important is the zero bound in setting the inflation target rate？
6.6 Conclusions
Annex：THE representative agent model（RAM）
References
7　Forecasting Inflasting：The Inflation‘Fan Charts’
8　Asset Financial Stability，and the Role of the Central Bank
9　Money，Asset and the Boom-Bust Cycles in the UK：An Analysis of the Tranmission Mechanism from Money to Macro-Economic Outcomes
10　Money，Bubbles and Crashes：Should a Central Bank Traget Asset Prices?
11　Monetary Policy and the Bank of Japan
Appendix 1：Unemployment versus Inflation?An Evaluation of the Phillips Curve
Appendix 2：The Counter-RevoIution in Monetary Theory
Index