Nonetheless, independence was granted to the Bank of England by a newly elected Labour government in 1997, and subsequent researchers have linked this independence to declines in both longer-term inflation risk premiums and inflation expectations. 2 The literature I discussed in my 1994 speech was developed with an emphasis – based on post-World War II experience – on the problem of preventing high inflation.
But we are no longer in that era. The inflation problem with which most of the leading economies are dealing is inflation that is too low, not too high.