It is currently 17 Oct 2017, 10:30


GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

for You

we will pick new questions that match your level based on your Timer History

Your Progress

every week, we’ll send you an estimated GMAT score based on your performance


we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.


Request Expert Reply

Confirm Cancel

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

LSE Professor says "Minor Replay" of Stagflation

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
Senior Manager
Senior Manager
User avatar
Joined: 30 Jul 2007
Posts: 385

Kudos [?]: 59 [0], given: 5

Location: Europe
Schools: St. Gallen '09
LSE Professor says "Minor Replay" of Stagflation [#permalink]

Show Tags

New post 31 Jan 2008, 03:39 ... refer=home

World Faces `Minor Replay' of 1970s Stagflation, Goodhart Says

By Svenja O'Donnell

Jan. 31 (Bloomberg) -- Central banks across the world face a ``minor replay'' of the stagflation of the 1970s as inflation picks up and economic growth slows, former Bank of England policy maker Charles Goodhart said.

``All the world's main central banks now face a more difficult period,'' Goodhart, a London School of Economics professor, said in an interview. ``We're going into a sort of a minor replay of the stagflation we had in the 1970s. Growth has been declining, productivity has been falling awkwardly, and there have been supply shocks on the inflationary side.''

The International Monetary Fund this week cut its forecast for global growth this year to the weakest pace since 2003 and said that strengthening inflation pressures pose a dilemma for policy makers. The Federal Reserve yesterday lowered its benchmark interest rate for the second time in as many weeks to stave off a recession in the U.S. economy, the world's biggest.

``Life is a lot more difficult,'' Goodhart said, speaking late yesterday. ``When you combine that with this present financial crisis, you've got a very nasty year or so for central bankers to get through.''

Goodhart served on the U.K. central bank's Monetary Policy Committee for three years from 1997, and spoke at a conference of the LSE's Financial Markets Group, a study center founded by Bank of England Governor Mervyn King. He developed `Goodhart's Law' in 1975, which holds that targeting monetary aggregates as a surrogate for inflation is futile.

`He's Right'

``He's right, he usually is,'' said Kevin Gaynor, head of economics and rates strategy at Royal Bank of Scotland Group Plc ``He's one of my heroes.''

Gaynor said that the ``core circumstances'' facing the world economy are similar to the start of the 1970s. ``Loose global monetary policy, global growth that's strong and a whiff of inflation pressures in the air,'' he said. ``We're exactly in the same position now.''

The oil crises of the early 1970s fueled a jump in wages and inflation that King describes as ``the great inflation.'' Faster price gains were accompanied by higher unemployment and slowing growth, giving rise to the description ``stagflation.''

The oil price exceeded $100 a barrel this month, adding to living costs for consumers. King said last week that inflation in the U.K. may match the highest in a decade this year.

Gaynor said that the difference with the 1970s is that central banks are now better able to respond to such effects because they are independent and have inflation targets.

`A Different Story'

``Whether stagflation becomes entrenched is not at all certain,'' he said. ``For us it may be a minor replay in the West, but in emerging economies it's a different story. If anyone's going to suffer, it's them.''

The Federal Reserve lowered its benchmark by half a percentage point to 3 percent yesterday, saying that ``downside risks to growth remain.''

The Bank of England will cut its rate on Feb. 7 by at least a quarter-point to 5.25 percent, all 31 economists in a Bloomberg News survey predict. The European Central Bank will keep the rate at 4 percent on Feb. 7, according to 55 out of 56 economists in a Bloomberg News survey.

The world economy will expand 4.1 percent this year, down from 4.9 percent in 2007 and below the 4.4 percent pace projected in October, the International Monetary Fund predicted on Jan. 29. IMF Chief Economist Simon Johnson told reporters that ``no-one is going to be exempt'' from some slowdown.

``What we need is a great deal of luck,'' Goodhart said.

Kudos [?]: 59 [0], given: 5

Economist GMAT Tutor Discount CodesJamboree Discount CodesEMPOWERgmat Discount Codes
LSE Professor says "Minor Replay" of Stagflation   [#permalink] 31 Jan 2008, 03:39
Display posts from previous: Sort by

LSE Professor says "Minor Replay" of Stagflation

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  

GMAT Club MBA Forum Home| About| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.