Abstract

The Radcliffe Report (1959) was the most important statement of the British establishment view that monetary policy was not up to the task of macroeconomic stabilisation and should be complemented by policies which acted directly on lending. It was published during a three decade-long experiment of using credit policies alongside changes in the policy rate. These non-price tools are similar to policies now being considered by macroprudential policymakers. We describe what these tools were and how they were used and use a largely hand-collected dataset and a novel identification strategy – factor-augmented local projections (FALPs) – to investigate their effects.

We find that, contrary to the views of Radcliffe Committee members, the impact of changes in the policy rate on activity and prices was of the same direction and of similar order of magnitude as found for later periods in the UK and USA . Further, monetary policy shocks appear to have had an important bearing on the path of inflation, particularly in the 1970s. Our results hint at a negative effect of credit policy on output via a supply channel, although the robustness of these results is questionable. Our results call into question policymakers’ reliance on credit policies to stabilise output, inflation and the trade balance and raise questions about the consequences of this reliance on macroeconomic outcomes over this period. In contrast, our results suggest that policies that act directly on lending may be more suitable than monetary policy for financial stability policymakers.