Ethan Ilzetzki's picture
Affiliation: 
London School of Economics

Voting history

House Prices and the UK economy

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Question 1: Do you agree that the phenomenon of declining house prices will ripple out from the London property market leading more UK regions to experience falling prices?

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Answer:
Agree
Confidence level:
Confident
Comment:
London is the central hub of the UK economy and a slowdown in London is likely to spill over to other parts of the country. In research we have conducted on the UK housing market (Cloyne, Huber, Ilzetzki, and Kleven, 2017), we find that a £1 decline in housing prices leads to a 20p decline in borrowing. From US-based research (e.g. Mian and Sufi) it appears that consumption declines follow the decline in borrowing. With weakening London consumption, house prices in the rest of the country are bound to suffer as well.

Global risks from rising debt and asset prices

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Question 2: Is the loose monetary policy of major central banks responsible for the recent increase in global leverage or asset values?

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Answer:
Disagree
Confidence level:
Not confident
Comment:
Low central bank rates are a consequence--not a cause--of global low real (risk-free) interest rates. The global recovey is still sluggish and central banks could and should address macroprudential risk with macroprudential policy, not interest rate policy.

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Question 1: Does the world economy face heightened risks arising from an excess of public and private debt and/or inflated asset prices?

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Answer:
Agree
Confidence level:
Not confident
Comment:
It is very difficult--perhaps impossible to identify in advance whether debt levels are "excessive" or asset prices are "over-inflated". Having said this, there are some signs pointing in this direction and I would err on the side of caution. UK savings rates have reached new lows, while leverage in mortgage markets is elevated again. House price growth is slowing. Global property values seem to be following a "whack a mole" pattern where house price collapes in one region (the US, Spain) seems to br followed quickly by a new "hot market" discovery (Berlin, Vienna, China).

Juncker's State of the Union Address

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Question 2: Do you agree that the euro has had more benefits than costs?

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Answer:
Disagree
Confidence level:
Confident
Comment:
On the benefit side, it is hard to detect any substantial trade benefits to the currency union, but monetary union allowed a slower current account adjustment as the crisis unfolded. On the cost side, the need for current account adjustment was most likely caused by monetary union, driving the flood of capital flows from north to southern Europe that fueled the crisis. When the crisis unfolded, this also made monetary (and to some extent fiscal) adjustment impossible.

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Question 1; Do you agree that euro membership should be compulsory for all EU member states?

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Answer:
Neither agree nor disagree
Confidence level:
Not confident at all
Comment:
As I note below, the costs of the Euro have proved to outweigh its benefits. However, I can see the potential political need to require this as part of a closer union involving a banking and fiscal union.

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