'Constrained Discretion' in UK Monetary and Regional Policy

McVittie, Eric and Swales, J Kim (2004) 'Constrained Discretion' in UK Monetary and Regional Policy. Discussion paper. University of Strathclyde, Glasgow.

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HM Treasury claims that the notion of “Constrained Discretion” which directs the effective operation of UK monetary policy applies equally to other delegated and devolved policies, such as the use of Regional Development Agencies in the delivery of UK regional policy. We question this claim from a “transactions cost politics” viewpoint. We argue that the delegation of responsibility for monetary stabilisation raises principal agent issues quite different to those encountered in the delegation of the responsibility for regional regeneration. Therefore the effectiveness and transparency that characterises present-day monetary policy cannot be expected in regional policy. Further, the detailed theoretical and empirical case for delegated Regional Development Agencies has yet to be made.