Abstract
Over the past fifteen years there has been a steady revolution in attitudes towards the role of monetary policy in the United Kingdom. In the years following the publication of the Radcliffe Commission Report in 1959 there was widespread belief that monetary policy was unlikely to affect economic activity. In part this conclusion stemmed from a view that aggregate expenditure, in particular investment, was not responsive to interest rates. However, a dominant concern was that monetary policy was simply incapable of systematically controlling aggregate liquidity and credit. This viewpoint is most elegantly stated in the famous paragraph 392 of the Radcliffe Report:
....If there is less money too round, in relation to the other assets (both physical and financial), it will be held only by people willing to make a greater sacrifice in order to hold it: that is to say, rates of interest will rise. But they will not, unaided, rise by much, because in a highly developed financial system (such as the United Kingdom system), there are many highly liquid assets which are close substitutes for money, as good to hold and only inferior when the actual moment for a payment arrives.
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McKenzie, G.W., Thomas, S.H. (1990). Real and Financial Linkages in the UK Economy. In: Artus, P., Barroux, Y. (eds) Monetary Policy. Advanced Studies in Theoretical and Applied Econometrics, vol 19. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-7852-3_10
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DOI: https://doi.org/10.1007/978-94-015-7852-3_10
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