Costas Milas's picture
Affiliation: 
University of Liverpool
Credentials: 
Professor of Economics

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:
Agree
Confidence level:
Confident
Comment:
In the presence of elevated economic uncertainty, monetary policy tightening becomes less effective (see https://www.sciencedirect.com/science/article/pii/S0261560617300943). The reason is that elevated uncertainty motivates agents to postpone decisions until more precise information becomes available, and this cautiousness makes them less responsive to changes in the economic environment, including the interest rate. The implication is that an additional interest rate hike will have a much smaller impact on inflation and GDP growth than conventional wisdom suggests. Is it not better to wait until we have a clearer picture about the economy? Luckily enough, the GDP reading for 2018Q1 will come before the May interest rate decision so MPC members will have a clearer picture of the economic outlook before pressing the button.

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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:
Neither agree nor disagree
Confidence level:
Confident
Comment:
The relationship between inflation and unemployment is by no means linear and depends on the starting point of inflation. In a brand new paper joint with my colleague Michael Ellington (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2882494) we show that UK inflation is driven by monetary developments when inflation is already high (above 3%). Therefore, at high inflation rates, MPC should pay closer attention to money growth rather than labour market developments.

Bitcoin and the City

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Question 2: Do you agree that the regulatory oversight of cryptocurrencies needs to be increased?

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Answer:
Agree
Confidence level:
Confident

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Question 1: Do you agree that cryptocurrencies are currently a threat to the stability of the financial system, or can be expected to become a threat in the next couple of years?

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Answer:
Agree
Confidence level:
Confident

House Prices and the UK economy

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Question 2: Do you agree that a more widespread weakening of the UK housing market will slow UK GDP growth significantly?

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Answer:
Agree
Confidence level:
Confident
Comment:
Both in 1990 and in 2008, a big drop in real house prices preceded recessions. Real house prices inflation turned negative in 1989q4 (and stayed negative) well before the GDP recession in 1991q1. On the other hand, real house price inflation turned negative in 2008q1 just two quarters before (the subsequent) GDP recession. So if history were to repeat itself, a widespread slowdown in house prices will hit GDP growth quite significantly. For what is worth, I discuss and provide a historical plot of real house price growth and GDP growth at: https://news.liverpool.ac.uk/2014/06/27/viewpoint-housing-market-threat-and-bank-of-englands-response/

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