Andrew Mountford's picture
Affiliation: 
Royal Holloway
Credentials: 
Professor of economics

Voting history

Brexit and financial market volatility

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Question 1: The value of the pound fell sharply this week. Do you agree that the public debate on Brexit can be expected to (continue to) lead to a substantially higher level of exchange rate volatility in the upcoming months?

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Answer:
Disagree
Confidence level:
Confident
Comment:
This should be the moment of maximum uncertainty. At the last general election even if you consider the Conservatives split 2/3 for Brexit then there were less than 40% of the electorate voting for parties in favour of Brexit. Thus as time progresses I think opinion polls will show a clear majority in favour of the UK remaining in the EU and so the uncertainty surrounding the referendum will subside.

Market Turbulence and Growth Prospects

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Question 2: Do you agree that the falls in share prices, low oil prices and the slowdown in some emerging market economies will have a significant negative impact on the UK’s economic recovery?

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
The UK regulators tell us that the UK Financial system is robust enough to cope with such shocks. I hope their modeling has been up to the task and in particular includes a feedback loop to the UK property market whose disproportionate presence on UK banks balance sheets poses a large and potentially systemic risk to the UK financial system. Hopefully the regulators’ confidence is well founded and if so the effect on the UK’s recovery, while obviously negative, shouldn’t be too severe.

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Question 1: Do you agree that economic growth prospects for the global economy have seriously deteriorated?

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
Well of course they have deteriorated, but by how much? i.e. what do you mean by “seriously”? As chronicled by Reinhart and Rogoff financial crises are associated with deeper recession and longer than average recoveries in the directly affected economies. Stock market crashes however do not necessarily cause financial crises and do not necessarily have such severe implications e.g. the bursting of the dot com bubble was only associated with a mild downturn in growth. The effects of the last East Asian Financial in the late 1990s caused huge drops in GNP in the East Asian economies directly affected but the financial contagion was largely confined to East Asia. Thus for me the implications for the world economy in general of the Chinese slowdown and stock market volatility depend on the vulnerability of the Chinese and Western banking systems to these events. The UK, EU and US regulators assure us that their banks have the capital to withstand such shocks. I hope they’re right.

Autumn Statement & Charter for Budgetary Responsibility

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Question 2: Do you agree that the Charter for Budgetary Responsibility is helpful in underpinning the credibility of fiscal policy?

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Answer:
Strongly Disagree
Confidence level:
Extremely confident
Comment:
Calling the OBR “independent” is a bit of stretch. It has a staff of 19 civil servants. This is not enough people to produce truly independent analysis and the cynically minded may expect these civil servants to look to the government for their future careers. A truly independent fiscal body will have guaranteed long term funding and a sizable staff with its own credible career structure. e.g. the USA’s CBO has a staff of 235 see https://www.cbo.gov/about/organization-and-staffing Thus fiscal forecasts that rely on the OBRs projections will inevitably invite scepticism even when they don’t hinge on a more optimistic modelling of future tax revenues see e.g. http://www.ft.com/cms/s/0/e65dd262-9384-11e5-b190-291e94b77c8f.html

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Question 1: The Chancellor forecasts a cyclically adjusted fiscal surplus by 2017-18 and in cash terms by 2019-20. Do you agree that this planned path of fiscal consolidation is appropriate?

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Answer:
Strongly Disagree
Confidence level:
Extremely confident
Comment:
No. Basic economics argues for spreading the costs of unusually large adverse shocks over time. The planned fiscal consolidation is far from such a smooth adjustment process.

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