Explaining the important current policy issues in the conduct of monetary policy, Issues in Monetary Policy analyzes the relationship between monetary policy and inflation and the relationship between monetary policy and the behavior of financial markets, including asset prices, exchange rates, and interest rates.

List of Contributors. 1 Issues 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). 3.4 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 37 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? 4.3 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. 5.4 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. 6.6 Conclusions. Annex: The representative agent model (RAM). References. 7 Forecasting Inflation: The Inflation 'Fan Charts' (Kevin Dowd). 7.1 Inflation forecasting. 7.2 The inflation fan charts. 7.3 The Bank's forecast inflation density function. 7.4 Evaluating the Bank's inflation forecasts. 7.5 Conclusions. Annex: The two-piece normal density function. References. 8 Asset Prices, Financial Stability, and the Role of the Central Bank (Forrest Capie and Geoffrey Wood). 8.1 Introduction. 8.2 What is price stability? 8.3 Financial stability. 8.4 The lender of last resort. 8.5 Do asset prices matter? 8.6 Should institutions be propped up? 8.7 Financial benefits of monetary stability. 8.8 Conclusions. References. 9 Money, Asset Prices and the Boom-Bust Cycles in the UK: An Analysis of the Transmission Mechanism from Money to Macro-Economic Outcomes (Tim Congdon). 9.1 Introduction. 9.2 Traditional accounts of the transmission mechanism. 9.3 Asset prices in the traditional accounts. 9.4 The ownership of capital assets in the UK. 9.5 Asset prices and economic activity. 9.6 Conclusion: Money and asset prices in the transmission mechanism. Annex: Econometric analysis of one type of real balance effect. References. 10 Money, Bubbles and Crashes: Should a Central Bank Target Asset Prices? (Gordon T. Pepper with Michael J. Oliver). 10.1 Introduction. Part A: The monetary theory of bubbles and crashes. 10.2 Types of traders in securities. 10.3 Extrapolative expectations. 10.4 Debt-deflation. Part B: Should a central bank target asset prices? 10.5 Preventing financial Bubbles. 10.6 Conclusions - an answer and a question. Annex: Disequilibrium. References. 11 Monetary Policy and the Bank of Japan (John Greenwood). 11.1 Introduction. 11.2 Japan's golden era in monetary policy, 1975-85. 11.3 How monetary policy went off the rails, 1985-89. 11.4 The bursting of the bubble, 1989-91. 11.5 Assessment of policy responses. 11.6 Monetary policy - deliberate yen depreciation. 11.7 Monetary policy - government borrowing from the banks. 11.8 Restructuring policies. 11.9 Conclusion. References. Appendix 1: Unemployment versus Inflation? An Evaluation of the Phillips Curve (Milton Friedman). Appendix 2: The Counter-Revolution in Monetary Theory (Milton Friedman). Index.