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The Making of Monetary Policy in the UK, 1975-2000


Over the quarter of a century with which this book is concerned, the UK has had an extraordinarily diverse experience of monetary policy and monetary regimes. Monetary policy has been transformed, from attempts to control broad money from the supply side with the use of indirect controls on banks' lending, to an almost exclusive focus on interest rates in a context of inflation targeting. The exchange rate has at times been fixed, at other times almost perfectly flexible, and at other times again more or less managed. Meanwhile the real economy has experienced large variations in growth, together with what most observers have seen as a sharp rise and then a gradual decline in the NAIRU; inflation has varied between 25% and 2%.

This is a book about the making of monetary policy in the UK, about how and why the monetary regimes changed over the period, and how and why the monetary authorities took the decisions they did about monetary growth, interest rates and the exchange rate. It includes separate chapters on monetary targeting, on policy in the second half of the 1980s, on the UK's brief membership of the ERM, on inflation targeting between 1993 and 1997, and on inflation targeting with instrument independence since 1997. It also contains a detailed analysis of the factors that influenced interest rate decisions and monetary policy with particular reference to the exchange rate, and an investigation of the nature and reasons for interest rate smoothing in the UK.

"David Cobham has written an excellent history of British monetary policy over the final quarter of the 20th Century. His judgement of the political and economic context is sound and sensible. It is well written with clear and helpful tables and charts. Besides the careful historical reporting, Cobham adds some valuable extra research of his own, notably on the interaction between monetary policy and the exchange rate (Chapter 9) and on the reasons for interest rate 'smoothing' (Chapter 10)." Charles Goodhart, Norman Sosnow Professor of Banking and Finance at the London School of Economics

" essential guide covering everything the reader could ever want to know about the UK's turbulent monetary history over the last quarter century" Charles Bean, Chief Economist, Bank of England

DAVID COBHAM is a Reader in Economics at the University of St Andrews. He was Houblon-Norman research fellow at the Bank of England in 1987 and 2001. His main research interest is UK monetary policy, but he has also worked on monetary integration (in Europe and in Africa), on monetary policy and central banking in France and Italy, on Islamic banking, and on financial systems.
List of Figures.

List of Tables.

Series Preface.



List of Abbreviations.

Analytical Introduction: Alternative Monetary Frameworks.

Historical Introduction.

Monetary Targeting, 1977-1986.

The Interregnum and the Lawson Boom, 1985-1990.

The ERM Interlude, 1990-1992.

The 1993-1997 'New Framework' for Monetary Policy.

Monetary Policy under the MPC, 1997-2000.

Interest Rate Decisions and the Exchange Rate.

Monetary Policy and the Exchange Rate.

Interest Rate Smoothing.

Conclusion: Competence, Commitment and Monetary Policy Performance.