David Cobham's picture
Affiliation: 
Heriot Watt University
Credentials: 
Professor of economics

Voting history

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:
Confident
Comment:
The social and political case for a regional policy which will reduce the gravitational pull of London and the South East, and respond to the growing perception of inequality elsewhere in the UK, is obvious. But there is also an economic case to be made in terms of the best use of resources and the maximisation of the potential of citizens (and, dare I say it, immigrants).

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Question 1: Do you agree that the UK needs a new industrial policy?

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Answer:
Strongly agree
Confidence level:
Confident
Comment:
It is, of course, not true that the UK has had no industrial strategy for the last 30-40 years. It's just that that strategy focused only on one industry, the financial industry. After the crisis everyone agreed that some rebalancing of the economy was called for, but so far no coherent policy has been put in place. In the next few years Brexit will almost certainly reduce the comparative advantages of UK finance. A Rodrik-style industrial policy - not picking winners but providing an appropriate environment - therefore makes a great deal of sense.

The Future of Central Bank Independence

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Question 3: More generally, do you agree that it is desirable to maintain central bank independence? Again focus on the near future, say next 48 months.

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Answer:
Agree
Confidence level:
Confident
Comment:
In the modern context central bank independence should be thought of as an aspect of the coherence of macroeconomic policy rather than a simple instrument for inflation control. Central banks with significant independence are more likely to contribute to policy coherence and to oblige ministries of finance to think coherently (and not politically), so it is important to try to maintain their (incomplete) independence. But good macroeconomic policy requires the use when appropriate of fiscal as well as monetary policy, and there it is more the politicians who need to revise their understanding of how the world works.

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Question 2: Do you agree that the traditional argument that less central bank independence leads to higher inflation will (still) be relevant over the next 48 months in Western economies?

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Answer:
Disagree
Confidence level:
Confident
Comment:
The empirical association between CBI and inflation comes mainly from the 1960s-1980s, and, while it is easy to point to individual cases where increases in CBI have had definite effects on policy and on inflation (France 1994, UK 1997), it is hard to replicate the previous findings with post-2000 data. However, so many countries increased the independence of their central banks in the 1990s, CBI in some form is now so firmly established and economies are relatively so integrated, that it is hard to see a major or explicit reversal in CBI or a large rise in the dispersion of rates of inflation. It is therefore unlikely that we will see a range of levels of independence associated with different rates of inflation, which means that the traditional argument will not regain its relevance.

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Question 1: Do you agree that central bank independence in the Eurozone and the UK will decline over the next 48 months?

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
Central bank independence in the UK has already been compromised, by the arrangements for QE and macro-pru, and by the appointment of Carney with the purpose of introducing forward guidance (because fiscal policy had been placed out of bounds for ideological reasons), so it's not clear that it will be further affected. In the Eurozone Draghi had to make repeated concessions to the austerity-obsessed German government (and public opinion), but he has now mase some progress, and again ti does not seem likely that the concessions or compromises need to go any further.

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