In September 2008 UK inflation hit 5.2%, its highest in over a decade, and the Monetary Policy Committee had spent the year worrying about exactly that. The problem that actually arrived was the opposite one, and it arrived in about six weeks.
Play the 2008 scenario →Everything else in this game is a supply shock. Energy gets dearer, so prices rise and output falls, and both of your targets break in the same quarter. That is 1974, and that is 2022.
2008 is a demand shock, and it behaves the other way round. Credit stops, firms stop investing, households stop spending, and output, employment and prices all fall together. It is in one sense an easier problem — there is no trade-off, because cutting rates helps both of your targets at once — and in another sense a far more frightening one, because the floor beneath you is zero and the thing waiting below it is deflation.
This is the only scenario in the game built on that second kind, and it is the reason the deflation trap exists in the model at all. Most players never see it.
Inflation 5.2% · Unemployment 5.7% · Bank Rate 5% · Twenty quarters, Q3 2008 to Q2 2013
Every number on that line is pointing the wrong way. Inflation is the highest it has been in your professional life, and it is the thing you must ignore.
Lehman Brothers failed on 15 September 2008 and interbank lending effectively stopped. What had been a financial crisis became a collapse in demand across the whole economy, and it was worldwide — every major central bank was cutting at the same time.
The Bank of England took Bank Rate from 5% to 0.5% in six months, including a full percentage point in a single November meeting. It then left it at 0.5% for seven years. Inflation fell from 5.2% to 1.1% by September 2009. When rates ran out of room, the Bank turned to quantitative easing instead — £200bn of it by the end of 2009.
Then it turned again. By September 2011 CPI was back at 5.2%, pushed up by energy prices, a weaker pound and a VAT rise, while unemployment was still climbing towards its 8.4% peak. That is the genuinely hard part of this term, and the reason it is worth playing: you get both problems, in the same five years, in the wrong order.
Mostly, it asks whether you can bring yourself to cut into 5.2% inflation.
Everything in the game's training tells you not to. Inflation above the band costs you points every quarter, the credibility penalty fires at 3.5%, and the Committee will spend the first year advising you to hold or hike. In testing, a rule that reacts sensibly to the data — tightening because inflation is high — does worse than doing nothing at all. It is the only scenario where that is true.
Then, around your eleventh quarter, energy prices come back and you have to decide whether the overshoot is the beginning of a spiral or a bump to be looked through. The real MPC looked through it. Whether that was brave or lucky is still argued about.
The honest caveat. There is no quantitative easing in this game, no banking system and no credit spread — the very things the crisis was actually about. You get one interest rate, and the zero lower bound is modelled simply by the slider stopping at 0%. The model also puts people back to work faster than the real recovery did: unemployment peaked at 8.4% in reality and stayed above 7% for years, where the game pulls it back toward its natural rate more briskly.
Par is −190. Never cutting scores about −319 and ends the term pinned at the deflation floor with unemployment near 15% — a depression, which is roughly the honest answer to what would have happened. Tightening into the slump scores worse than passivity.
The rate path the MPC actually ran — 5% to 0.5% in six months, then hold — scores about −144, and is the best of everything tested. It reproduces the history well: inflation troughing just above zero, then back over 3% by the end of the term.
So this scenario has an answer, and the answer is the one the real Committee found. The question is whether you will trust it while the inflation number on your screen is 5.2% and rising.
Play the 2008 scenario →See also 1974, the supply shock that made the 1970s, and 1992, where the constraint was a currency. The equations are in how the model works.