To translate this back into a Taylor-rule world, we would need to know the so-called “shadow prices”. Of course we don’t know those unobservable prices. But we can, perhaps, get a broadbrush handle on the materiality of the tightening by using estimated equations for credit (and money) demand, holding all other influences constant. 10 There is just huge uncertainty  7  See Tucker, PMWT (2008), “The credit crisis: lessons from a protracted peacetime”, remarks given at the Chatham House conference on “The New Financial Frontiers”. These remarks are also forthcoming in the 2008 Q3 edition of the Bank of England Quarterly Bulletin. 8  See Taylor, JB., (2008) “Monetary Policy and the State of the Economy”, testimony before the Committee on Financial Services, US House of Representatives, February and Mculley, P and Touli, R (2008) “Chasing the Neutral Rate Down: Financial Conditions, Monetary Policy, and the Taylor Rule”, Global Central Bank Focus, PIMCO. 9  Another reason reflected in the Curdia and Woodford (2008) paper is the fact that borrowers and savers have different propensities to consume. Consequently a change in spreads will affect the “average rate” faced by borrowers and savers in a different way from a change in the policy rate. 10  Based, for example, on Brigden, A and Mizen, P (1999) “ Money, credit and investment in the UK corporate sector”, Bank of England Working Paper number 100. BIS Review 112/2008  5  about such estimates but, for what it’s worth, they indicate a material tightening from this source.
Paul Tucker: Money and credit, twelve months on Speech by Mr Paul Tucker, Executive Director and Member of the Monetary Policy Committee of the Bank of England, at the Money, Macro and Finance Research Group 40th Annual Conference, Birkbeck College, London, 12 September 2008. *  *  *  As many people have said, this is a challenging time for policymakers. But the real challenge is for households and firms in the real world who are having to navigate the fallout from the extraordinary combination of financial and commodity shocks rippling through the world economy. Our job as policymakers is to make that process as smooth as it can be over the medium term. And having our eye on the medium term means we must ensure that the gains of the past ten-to-fifteen years in stabilising inflation are not frittered away. In confronting that task, policymakers are having both to make big picture judgments about the balance of forces buffeting the UK economy; and to apply areas of economic theory that stretch the frontiers of existing research. So, in joining your research conference this morning, I want to sketch, broadly, what the current conjuncture suggests, from the policymaker’s perspective, should feature in the future research agenda of monetary economists. The current conjuncture, and policy By way of establishing the context, I will begin with the Bank of England’s most recent economic forecast. In August, the Monetary Policy Committee published our latest projections for output growth and inflation.