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

Voting history

Deal or no deal: The Greece standoff

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Question 3: Do you agree that implementation of the agreement will lead to an expected decrease in Greek debt repayments?

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Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
Sadly I do not think that the current deal (such that we know) will be anything like enough to stabilise Greece's finances unless the economy can grow which seems highly unlikely with the likely NPLs in the banking system. I think the end game will be a referendum or fresh election which will decide the fate of Greece in the eurozone.

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

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Answer:
Strongly Disagree
Confidence level:
Confident
Comment:
At a minimum I would have thought one would want capital controls in place first before defaulting. Since there is some way to go before the debt relief is known (if there is any), with capital controls in place I don't see why one would not hear the offer first.

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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?

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Answer:
Strongly Disagree
Confidence level:
Confident
Comment:
Without an agreement I would expect the economy to relapse into a deep recession. With the agreement, depending on what is finally offered in terms of debt relief, there is at least a hope of an improvement. Therefore I think that the package will have a marginal positive effect compared to default and banking system collapse.

Monetary policy and the zero lower bound (ZLB)

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

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Answer:
Strongly Disagree
Confidence level:
Confident
Comment:
I am sympathetic to the concern around the lack of 'room to manoeuvre' in the event of another serious downturn expressed in the question. However, for the first three years of this recession, even after interest rates were reduced to 0.5 per cent in early 2009, the break down in the transmission mechanism lead to higher borrowing spreads that mitigated the stimulus. Perhaps a better response is to address the banking sector and financial market weakness faster - once total collapse had been averted - and increase the diversity of finance. This is a more direct and better understood response than experimenting with negative rates. I also suspect that innovation would soon offer insurance against 'materially' negative rates and so weaken the degree of stimulus e.g. the use of money market funds with chequing facilities.

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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')

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Answer:
Disagree
Confidence level:
Confident
Comment:
Scandinavian central banks have shown it is feasible to have marginally negative nominal official rates. However, I am doubtful that 100 basis points off the Bank rate would make such an impact on the UK in the extreme times when this would be relevant. Therefore, I interpret 'materially negative' to be around negative two per cent or so. I am doubtful this could be 'safely implemented'. For example, in the UK home owners would earn money (or cost zero) for a typical floating rate mortgage. For all sorts of political economy reasons property would be a very good store of value (as we repeatedly see by government policy toward housing). Also banks would be paid to borrow from interbank markets and so run mismatched balance sheet positions (to require interbank borrowing). This could raise all sorts of information problems which might affect market liquidity.

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