Economic Policy

This page explains two of the main tools of economic policy – monetary policy and fiscal policy. We briefly explain how they are supposed to work and provide data on them for the UK and other countries. In each case our data sources are given in the right-hand side panel. And from the side panel you will also be able to download the data in Excel or comma-separated (CSV) formats (the latter being simple text files which can be read into any text editor or spreadsheet.)


Monetary Policy

Monetary policy is one of the key policy instruments used to stabilise the economy, in particular, in recent years, to achieve a target inflation rate. We briefly explain how it is supposed to work and why in recent times some major Central Banks have resorted to unconventional monetary policies. In commentary we present evidence on both the quite exceptionally low interest rates set by the UK Central Bank and others in response to the financial crisis that began in 2007 and also the huge increases in the Monetary Base caused by Quantitative Easing.

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Fiscal Policy

The concepts on this page relate to fiscal policy. We explain the main commonly-used fiscal policy indicators and the issue of fiscal sustainability. We present data on a number of these indicators – both actual and projected values – for the UK and elsewhere, and we describe their behaviour in response to the financial crisis of 2007 and the Greek Debt crisis of 2010.

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Austerity

The term austerity has been given to a policy of cuts in government expenditure and/or increases in taxation. A number of countries adopted, or were obliged
to adopt, such policies in response to the 2008 financial crisis and the Greek debt crisis in 2010. This page sets out the arguments for austerity and those of its critics.

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Fiscal Rules

A number of different “fiscal rules” have been deployed at different times by the UK and other governments. The stated, broad aims of all of them are to impose some predictability on the operation of fiscal policy – and thereby encourage confidence, and to prevent governments from manipulating fiscal policy for electoral purposes.

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Helicopter Money

Helicopter money is the name given to a policy designed to stimulate demand in an economy when more conventional monetary and fiscal policies have failed or been ruled out. The term originates with Milton Friedman who imagined a Central Bank scattering bank notes from a helicopter; the idea is that those who pick them up will spend them.

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Devaluation and the J-curve

On November 1967 the pound was devalued by around 14%. Almost 50 years later, following the Brexit referendum in June 2016, the pound also fell in value by around 14%. Does the post-1967 UK experience provide a guide to the likely effects of the post-referendum fall in the pound?

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