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

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:
Strongly Agree
Confidence level:
Extremely confident
Comment:
The referendum creates a binary event on a particular day where at least one of the outcomes is uncertain. If the polls are close then the range of outcomes on the day is much higher than it would have been than without the referendum. This is present in the substantial difference in options volatility before and after the event.

China’s growth slowdown: likely persistence and effects

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Question 2:

Do you agree that if the Chinese slowdown turns out to be persistent, it will have a significant impact on UK growth (say, in the order of a few tenths of a percentage point) and/or it will justify a material change in monetary policy (for example, in terms of the timing and speed of a return to ‘normal’ interest rates) and fiscal policy (for example, in terms of the timing and speed of fiscal contraction).

Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
It depends what is already discounted in global markets for future world growth. Current bond yields suggest a benign growth and inflation outlook ahead.

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Question 1:

Do you agree that the Chinese economy is likely (say more than 50% probability) to maintain in the medium term (say, for at least ten years) a rate of annual growth exceeding 6%.

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Answer:
Disagree
Confidence level:
Confident
Comment:
Based on our global economy forecast using the National Institute Global Econometric Model (NiGEM) we estimate that China will grow by 5.9% between 2018-20 and slightly slower thereafter. Over the next ten years the slowdown in population growth and increasing in aging profile will be greater than in Europe. Our production function also suggests a gradual slowdown in TFP. The dynamics of the dependency rate and population look similar to East Asia (ex China) in the 1980s. The short term will depend on how sucessfully China can transition to its new development model as it liberalises its financial structure. This has rarely been a smooth process.

ECB's quantitative easing

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Question 2:

Do you agree that the structure of the ECB's QE programme makes the Eurozone more fragile and increases the risk of one country leaving the euro?

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Answer:
Strongly Agree
Confidence level:
Very confident
Comment:
In a monetary union it should not matter where the losses arise (e.g. which regional Fed or national central bank) as both can be easily re-capitalised by the same government. But where there is no central government, as in the case of the Eurozome, the solvency of the regional or national governments becomes important. The design of the QE programme, and comments from ECB board members, seem to reflect this recognition. The next shock to the Eurozone is likely to see this issues resurface.

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Question 1:

Do you agree that the design of the ECB's QE programme reduces its effectiveness? 

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Answer:
Strongly Agree
Confidence level:
Very confident
Comment:
What is the measure of effectiveness? Surely the objective goes beyond increasing base money; that is simply the operational outcome. If the objective is to increase broad money or nominal GDP - I would argue the objective of QE - then the limited risk sharing will reduce the effectiveness of QE when there is real concern about the solvency of a government. The limited risk sharing increases the probability of the central bank becoming insolvent compared to with risk sharing. And since the government would not be able to re-capitalise it, this carries the risk of capital flight. This would reduce the probability of the objective being achieved. As we know from the recent Greek negotiations, it is far from clear that other EU members are prepared to support an insolvent government. Indeed, one could argue that the greater the QE programme, the more this increases the risk for the central bank if the government is insolvent (or cannot access private markets).

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