Inflation Targets as a Stabilisation Device

Over 80% of countries using explicit inflation targets in 2000 were doing so either as part of a disinflation strategy, or when inflation was neither low nor stable. Our illustrative theoretical model suggests annual revisions to short-run targets are endogenous to inflation outcomes during disinflation as long as the policymaker cares about misses from both the short-run target and a long-run target. Furthermore, target revisions will are larger when the target is undershot compared to when the target is overshot. We confirm the result using cross-country panel estimates from a unique data-set of inflation target misses in 60 countries in the 1990s. During disinflation it is therefore relatively difficult to separate decisions about target-setting from implementation. Short-term targets on a disinflation path may be more akin to conditional forecasts than policy rules, but their publication may nevertheless increase transparency and hence help policymakers to achieve lower inflation.

Inflation Targets in a Global Context

Inflation targeting has become a global framework, used by countries of many different types and in all the continents of the world. To assess its global contribution, this paper uses one of the broadest ever surveys of monetary policy frameworks to construct an overall picture from the individual jigsaw pieces of framework characteristics. The jigsaw is made of targets and other measures of policy reaction, institutional characteristics such as independence, accountability and transparency, and analytical capacities within the central bank. The paper notes that the use of inflation targets has spread very rapidly in the 1990s, far more so than has the number of "inflation targeting" frameworks. The analysis focuses on the flexible use of inflation (and money) targets, and how these relate to indicators of each of central bank reaction functions, independence, accountability, transparency, and analytical methods. The use of targets appears to have built a strong momentum towards explanation of policy, and the use of inflation targets in particular has provided a vehicle for communication between central banks and governments and the private sector.

Wealth and asset price effects on economic activity

Do asset prices affect real activity? This question has taken on a new importance in recent years, as asset values first surged at the end of 1990s and, thereafter, dramatically retreated. This report reviews the available theoretical and empirical evidence regarding asset price and wealth effects in Europe and some other major economies. The main focus of this report is on consumption effects via the wealth channel, reflecting the bulk of literature on the effects of asset prices. However, asset price effects on investment via the Tobin’s-Q channel, balance sheet and confidence channels are also reviewed. The available evidence supports the view that the wealth channel is the most important of various channels. There is little empirical evidence indicating that the Tobin’s-Q, balance-sheet and confidence channels play any major independent role in the transmission of asset price effects to economic activity.household wealth, wealth channel, asset price, marginal propensity to consume, cost of capital.

Funding Liquidity Risk in a Quantitative Model of Systemic Stability

We demonstrate how the introduction of liability-side feedbacks affects the properties of a quantitative model of systemic risk. The preliminary version of the model, which is still in its development phase, is based on detailed balance sheets for UK banks and encompasses macro-credit risk, interest and non-interest income risk, network interactions, and feedback effects. Funding liquidity risk is introduced by allowing for rating downgrades and incorporating a simple framework in which concerns over solvency, funding profile and confidence may trigger the outright closure of funding markets. In presenting results, we focus on how policymakers could use the model with reference to both aggregate distributions and analysis of a scenario in which large losses at some banks can be exacerbated by liability-side feedbacks, leading to system-wide instability.

Pre-exposure prophylaxis to prevent the acquisition of HIV-1 infection (PROUD) : effectiveness results from the pilot phase of a pragmatic open-label randomised trial

Background Randomised placebo-controlled trials have shown that daily oral pre-exposure prophylaxis (PrEP) with tenofovir-emtricitabine reduces the risk of HIV infection. However, this benefit could be counteracted by risk compensation in users of PrEP. We did the PROUD study to assess this effect. Methods PROUD is an open-label randomised trial done at 13 sexual health clinics in England. We enrolled HIV-negative gay and other men who have sex with men who had had anal intercourse without a condom in the previous 90 days. Participants were randomly assigned (1:1) to receive daily combined tenofovir disoproxil fumarate (245 mg) and emtricitabine (200 mg) either immediately or after a deferral period of 1 year. Randomisation was done via web-based access to a central computer-generated list with variable block sizes (stratified by clinical site). Follow-up was quarterly. The primary outcomes for the pilot phase were time to accrue 500 participants and retention; secondary outcomes included incident HIV infection during the deferral period, safety, adherence, and risk compensation. The trial is registered with ISRCTN (number ISRCTN94465371) and ClinicalTrials.gov (NCT02065986). Findings We enrolled 544 participants (275 in the immediate group, 269 in the deferred group) between Nov 29, 2012, and April 30, 2014. Based on early evidence of effectiveness, the trial steering committee recommended on Oct 13, 2014, that all deferred participants be offered PrEP. Follow-up for HIV incidence was complete for 243 (94%) of 259 patient-years in the immediate group versus 222 (90%) of 245 patient-years in the deferred group. Three HIV infections occurred in the immediate group (1·2/100 person-years) versus 20 in the deferred group (9·0/100 person-years) despite 174 prescriptions of post-exposure prophylaxis in the deferred group (relative reduction 86%, 90% CI 64-96, p=0·0001; absolute difference 7·8/100 person-years, 90% CI 4·3-11·3). 13 men (90% CI 9-23) in a similar population would need access to 1 year of PrEP to avert one HIV infection. We recorded no serious adverse drug reactions; 28 adverse events, most commonly nausea, headache, and arthralgia, resulted in interruption of PrEp. We detected no difference in the occurrence of sexually transmitted infections, including rectal gonorrhoea and chlamydia, between groups, despite a suggestion of risk compensation among some PrEP recipients. Interpretation In this high incidence population, daily tenofovir-emtricitabine conferred even higher protection against HIV than in placebo-controlled trials, refuting concerns that effectiveness would be less in a real-world setting. There was no evidence of an increase in other sexually transmitted infections. Our findings strongly support the addition of PrEP to the standard of prevention for men who have sex with men at risk of HIV infection. Funding MRC Clinical Trials Unit at UCL, Public Health England, and Gilead Sciences