Angus Armstrong's picture
Affiliation: 
National Institute of Economic and Social Research
Credentials: 
Director of Macroeconomic Research
Visiting Professor, Imperial College London

Voting history

Labour Markets and Monetary Policy

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Question 2: Do you agree that, in a period of great uncertainty and after a prolonged period of weak real wage growth, monetary policy makers can afford to wait for greater certainty about real wage developments and building inflationary pressure before raising interest rates?

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Answer:
Disagree
Confidence level:
Confident
Comment:
The issue is less about raising interest rates at all, more about whether the adjustment should be gradual. On this point I would support the gradual adjustment. But there are other signs of reaching full capacity than just past real wage growth. For example, increasing leverage is related to risk and the cost of capital. In my view policy makers should take a broader interpretation of their mandate and include other signs of being somewhere near to full capacity.

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Question 1: Do you agree that a strong labour market is a good indicator of building inflationary pressure?

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Answer:
Agree
Confidence level:
Confident
Comment:
I believe that a strong labour market is an indicator of inflationary pressures. However, the relationship is much looser than 'output gap' analysis would suggest. Global integration has had an influence on domestic wages, particularly at the lower end of the spectrum through some extent of factor price equalization. This has weakened the trade-off between wage and inflation. Ignoring international aspects has led to misreading the extent of excess or shortage of demand.

Global risks from rising debt and asset prices

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Question 2: Is the loose monetary policy of major central banks responsible for the recent increase in global leverage or asset values?

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Answer:
Agree
Confidence level:
Very confident
Comment:
Central banks themselves have argued that QE in part functions through rising asset prices so this hardly seems controversial. However, there is a deeper issue that conventional monetary policy also affects risk prremia. There has been some initial attempts to model spreads in central bank policy reaction functions which is welcome, but it is far from clear that risk taking can be summarised by a single metric. This creates a spil-over between monetary and financial policy which probably requires some further thought.

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Question 1: Does the world economy face heightened risks arising from an excess of public and private debt and/or inflated asset prices?

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Answer:
Agree
Confidence level:
Very confident
Comment:
Debt burdens in most advanced countries and many developing countries are at elevated levels which, cet. par., implies higher risk. To the extent that de-leveraging has occurred, debt burdens are only back to 2006-7 levels. I don't take a great deal of comfort from this. Economies were fragile in this period and the occurance of the crisis was not orthogonal to this fact. It is also worth noting that private debt burdens in the UK are rising slightly again. Note, this is not an argument for further austerity.

A “new” UK industrial strategy ?

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Question 2: Do you agree that the UK needs a new regional policy?

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Answer:
Strongly agree
Confidence level:
Extremely confident
Comment:
For many reasons, not least the legitimacy of our external policy and the integrity of the union. Obvioulsy this needs to be evidence based. I do not think that tax subsidies are necessarily the best way. But productivity levels and trends have become so divergent as long as London suffers some degree of slowdown then there is no obvious area which can offset this. This requires a real rethink of poliyc. For example, identifiable public expenditure is greater in London and the South than the North and how do we include our public support for tertiary education across the UK. Can we have technology only graduate schools in the North? Or chemical science in Teeside rather than London.

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