What’s good for 100s of fiscal plans is good for monetary policy too

Today we saw the Government release its plans for a multitude of spending and tax instruments, conditional on a forecast of the economy produced by the Office for Budget Responsibility.

Imagine, instead, that the Chancellor simply announced today’s values for all those instruments.  And, quizzed about what was going to happen in the future, said simply that he was going to face one ball at a time.  Or that the next move in spending was likely to be up.

Perhaps, when pressed, they might publish a forecast based on what market observers of government guessed they were going to do with those instruments, as a means of helping us out.  But then, subsequently, tiring of speculation about future fiscal plans, based on these forecasts, explained that one can’t actually infer what the government were going to do from them after all.

Imagine, too, that when pressed for information about these plans, the Chancellor simply said ‘Well, these are essentially decisions arrived at collectively.  It would be impossible for a collective to agree and communicate a set of forward plans for our fiscal tools.’

And think how we might react if, pressed further, they said ‘We do formulate these plans, of course, but you know more information can sometimes mean less understanding.  And we are not sure that the quality of discussion is high enough to get that whether things pan out as the plans say depends on how the economy evolves, and these are not hard and fast promises.’

This is how the Bank of England’s Monetary Policy Committee approach the problem of communicating about interest rates and asset purchases.  A decision over 2 instrument plans, not 100s.



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