Akos Valentinyi's picture
Affiliation: 
University of Manchester

Voting history

Deal or no deal: The Greece standoff

=======================================

Question 2: Do you agree that Greece would be better off defaulting right now rather than signing to the agreement under consideration?

=======================================

Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
Default is usually followed by a financial turmoil, and a loss of access by the government to borrow from the financial markets. A Greek sovereign default would have a more severe impact on the Greek banking system than in the case of another country which controls its own currency. A Greek default would render the banking system insolvent which would require of the ECB to cut its liquidity support as it can only lend to solvent banks. A sever Greek banking crisis is likely to follow a sovereign default which likely to have a further negative effect on Greek GDP.

=======================================

Question 1:  

Do you agree that, on balance, the implementation of the agreement as outlined in media reports will have a non-trivial negative effect on Greek GDP?

=======================================

Answer:
Neither agree nor disagree
Confidence level:
Very confident
Comment:
The question is hard to answer. On the one hand, primary surplus has negative effect on demand relative to a primary deficit. Hence one may argue that the proposed agreement has a negative effect on Greek GDP. On the other hand the existing bailout agreement required a higher primary surplus than proposed agreement, and the Greek economy was growing last year under the old agreement. Hence one may argue that the proposed agreement requires smaller cuts in government expenditures than the old one. Therefore it will have a positive effect on Greek GDP relative to the exiting agreement.

Monetary policy and the zero lower bound (ZLB)

============================================================

Question 2: Do you agree that the benefits of reforming the monetary system to allow materially negative policy interest rates outweigh the possible costs?

============================================================

Answer:
Disagree
Confidence level:
Very confident
Comment:
One the one hand, it is unclear how much negative policy rate would help as lending and commercial paper rates are significantly above the zero lower bound. The financial regulatory environment contributes significantly to the high lending rates on which negative policy rate may have little impact. On the other hand, there are nontrivial risks associated with changing to change the monetary system so that can generate negative interest rates. For example, the anticipation of the introduction of negative deposit rate may trigger large deposit withdrawals and lead to cash hoarding which could constraint banks further in lending.

============================================================

Question 1: Do you agree that it is feasible for the UK authorities to change the monetary system so that materially negative policy interest rates could be safely implemented? (In answering, you may wish to explain your reasons and define your view of 'material')

============================================================

Answer:
Disagree
Confidence level:
Very confident
Comment:
To set actual negative policy interest rate, is not that difficult as several of Europe’s central banks have cut key interest rates below zero. The more difficult question is how to do it so that it affects the market rates. Lending rates in the UK for example are significantly affected by regulations. It is unclear to what extent negative policy rate could offset that effect. In addition, some of the proposals that would ensure negative interest rates on deposits, for examples, ignores some of the practicalities of implementation. To introduce negative interest rate on some deposits, would require to inform depositors in advance that the term of their deposit contract changes. This can generate large deposit withdrawals as people would rather hold cash potentially resulting in liquidity problems of banks. This can reduce bank lending even further. In general, central banks can set they key interest rates below zero n an unanticipated way. However, ensuring that negative interest rates are paid on various financial assets, are very hard to achieve in an unanticipated fashion, which can destabilise financial markets.

Pages