Dr Andrew Lilico Talks Economics


He was very critical of the use of inflation targeting because he felt that it inevitably loses its credibility, since the central bank can get away with major "short term" deviations from the target by hiding behind forecasts that claim inflation is set to get back on target in the "medium term". Credibility is essential because as soon as the population stops believing that inflation is not being controlled, the more likely it is that inflation can get out of hand. He therefore put forward two broad alternatives: discretionary inflation targeting, in which the government could change the short run target according to economic events, and price level targeting. The latter is a similar model to inflationary targeting, except past years’ CPI activity is taken into account and a target price level is reached over a certain period of time, meaning consumers can be more certain about future prices.

Monetary policy is a significant part of our A-Level course, and therefore what we learnt was particularly helpful for our class work. Year 12s are set to explore his ideas further in enrichment classes. On behalf of the students who attended, I would like to thank Dr Lilico for giving up his time to come and talk to us and for allowing us to ask some tricky questions.

Harriet Baughen, Year 13