The Art of Monetary Policy

I am honoured to have the opportunity to address this year’s Conference of Economists. Economists have long had a substantial influence on public debate and public policy. We should not be surprised by that. Keynes observed almost 60 years ago that: ‘... the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. ... I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.’ Monetary policy is one area where the gradual encroachment of ideas has left its mark. Views about the role of monetary policy have evolved over several decades in response to the arguments of economists and the lessons of experience. They are still evolving and there is no unanimity. My own views, which I offer from the perspective of a policy maker, are in part encapsulated in the topic of my talk, ‘The Art of Monetary Policy’. However one sees economics in the round, monetary policy is definitely an art, not a science. What Can Monetary Policy Do?