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

Voting history

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.

German Council of Economic Experts' view of ECB policy

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Question 2: Do you agree that the ECB's monetary policy masks structural problems of member states?

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Answer:
Strongly disagree
Confidence level:
Very confident
Comment:
Of course structural problems exist (and will always exist). But there would be much more opportunity to deal with the structural issues if the economies of the Eurozone could return to a decent level and rate of growth of GDP. Deal with the short-term problem in the short-term, and the long-term problem in the long term (and don't manufacture moral hazard stories to preclude this)!

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Question 1: Do you agree that exceptionally loose monetary policy by the European Central Bank is no longer appropriate?

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Answer:
Strongly disagree
Confidence level:
Very confident
Comment:
Economic growth in the Eurozone continues to be below the level required to return to the trend output path, let alone recoup the losses experienced since 2010. Monetary policy can and should continue to contribute to growth, but it needs to be accompanied by some serious contraclyclical fiscal policy. The call for more and more structural reform (together with a refusal to consider inequality and poverty issues) is likely to be self-defeating. Overall, the GCEE report is a disappointing rerun of the same old diagnoses and policy recommendations which have already done so much damage to the Eurozone economy. The GCEE should think deeply about the failure of its policy recommendations to date, and should take more account of welfare in the non-German economies.

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