More On the English Hike

I had initially written this as an update to the post below but then I began digging (just a bit) and I thought it deserved mention above the fold so to speak. First off, Felix Salmon (The Economonitor) also reports on the raise by the BoE which is now 'official' by the way. Felix notes my pots and also quotes the Economist on the effect of immigration on potential output (that is the level of growth an economy can sustain without building up inflation). More importantly Felix concludes his post asking about inflation targeting vs. monetary targets in central bank policies.

The Economist concludes that the BoE might revert to monetarism, especially now that M4 growth, at 14.5%, is at a 16-year high. Maybe inflation targeting doesn't make things any easier for central banks after all.

Interestingly, Mark Thoma also has someting on this today as Trichet (the head of the ECB) recently has argued for the use of monetary targets in conducting monetary policy. In the light of lingering vigilance I guess this makes sense since inflation is below the ECB's target but the monetary indicators still indicate excess liquidity. Most notably, Mark also includes links to academic papers and articles which treat this question.

Time permitting I will hopefully have more to say about this at a later point.