The U.S. disinflation experience in the early 1980s was the prime example of this. Known memorably as the Volcker disinflation, the Federal Reserve took about four years to bring down inflation, but at a cost of the 1981-2 recession which was the most severe in the post-World War II period. Of course, one could argue that monetary policy is ineffective against supply shocks and therefore raising the interest rate would only further hurt the economy. It is true that monetary policy is a demand management tool. It is true that the best remedy to tackle any supply shock should be one from the supply-side policy that mitigates its impact on production costs and the economy’s potential output. However, most supply-side policies take time. For example, it takes many years to improve the logistic system, education and skill attainment of the labor force, and institutional quality. 2  BIS Review 98/2008  On the other hand, alleviation measures such as promoting the use of alternative energy has had a limited impact on inflation. In the short run therefore, what is left as a clear option is to adjust the demand accordingly to ensure stability in the immediate future as well as the medium term. After all, it is also true that inflation is a monetary phenomenon and should be corrected by monetary policy. To make my point clearer, let me compare the current situation with the cake eating analogy. Suppose that you gain happiness from eating cakes. I guess we all do.
That tradition continues with the new £ JMW Turner will circulate alongside Winston Churchill on the £ and Jane Austen on the £ In 2021, Alan Turing will soon replace Boulton and Watt on the £ These individuals have advanced British thought, demonstrated exceptional leadership, and more generally helped to shape this diverse society and forge our common values. I’m delighted to be joined today to celebrate Turner’s continuing influence by one of our most eminent artists, someone whom Turner has influenced and one of Margate’s own. As precocious and prolific as Turner, a fellow Royal Academician, the master of confessional art and fittingly, past winner of the Turner Prize, please welcome Tracey Emin. Book I, Chapter 4 “On the Origin and Use of Money” of Smith, A (1776), An Inquiry into the Nature and Causes of the Wealth of Nations. 6 A moniker used by Kocherlakota. See Kocherlakota, N (1998), “Money is Memory”, Journal of Economic Theory, 81 (2). 5  4  All speeches are available online at www.bankofengland.co.uk/news/speeches  4