Ethan Ilzetzki's picture
Affiliation: 
London School of Economics

Voting history

Brexit and financial market volatility

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Question 2: Do you agree that the possibility of Brexit significantly increases uncertainty and volatility in financial markets and the economy in general?

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Answer:
Agree
Confidence level:
Very confident
Comment:
No clear plans have been articulated as to the process through which the UK will exit the EU and what the UK's post-Brexit strategy. All pro-Brexit campaigners have stated that they would like to negotiate a new trade agreement with the EU--a process that would take years. In the interim, access of UK firms to their largest trading partner will be in question and the role of the City as the main financial centre for Europe will also be at risk. It is hard to see how this would happen without significant financial and economic turbulence.

Market Turbulence and Growth Prospects

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Question 2: Do you agree that the falls in share prices, low oil prices and the slowdown in some emerging market economies will have a significant negative impact on the UK’s economic recovery?

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Answer:
Disagree
Confidence level:
Not confident
Comment:
I disagree partly because of the word "significant" in the question and partly because of the oil price part of the question. Low oil prices are a positive for the UK economy overall. If low prices are due to weak demand then they are an indicator of slow growth, but not primarily in the UK, and not a cause for the slow growth itself. The stock market wealth losses would be a drag on the UK economy, if they are persistent. It is hard to ascertain the magnitude of these effects at this point.

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Question 1: Do you agree that economic growth prospects for the global economy have seriously deteriorated?

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Answer:
Disagree
Confidence level:
Not confident
Comment:
I disagree only because of the word "seriously" in the question. Even before the beginning of 2016 there were worrying signs from China, which I expected to be a drag on growth in 2016. Oil was already cheap in 2015 and the supply side factors for this price weakness are a positive rather than a negative. If the wealth losses implied by recent stock market declines turn out to be persistent, this will certainly have negative impact on growth this year, but it is very difficult to ascertain the magnitude at this point.

Autumn Statement & Charter for Budgetary Responsibility

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Question 2: Do you agree that the Charter for Budgetary Responsibility is helpful in underpinning the credibility of fiscal policy?

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Answer:
Disagree
Confidence level:
Confident
Comment:
Did a single European economy the EU's fiscal targets during the crisis? Could anyone have created in advance a fiscal rule that would have been appropriate for the unforeseen circumstances of the recent crisis? The need to sharply adjust discretionary spending to meet arbitrary targets is harmful to both economic activity and the credibility of the fiscal framework. The objective should instead be to create a system of automatic stabilizers that aims to be budget neutral over the cycle and makes large discretionary adjustments unnecessary in both booms and busts.

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Question 1: The Chancellor forecasts a cyclically adjusted fiscal surplus by 2017-18 and in cash terms by 2019-20. Do you agree that this planned path of fiscal consolidation is appropriate?

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Answer:
Disagree
Confidence level:
Confident
Comment:
It first needs to be noted that while there are significant downside risks for the UK economy, the level of public debt in the UK is not major among them. It has not been a significant risk throughout the crisis. The single-minded focus on naming a date at which the government will be in surplus has no economic rationale. There is no debt sustainability analysis that requires a government to run surpluses, particularly when interest rates are forecast to be low in the forseeable future. A credible plan for fiscal policy is important, but setting a specific numerical target without underlying analysis of the state of the UK economy is futile and may even harm credibility as plans will inevitably adjust to changing circumstances. Appropriate fiscal targets depend, inter alia, on whether one thinks the loss of output in the crisis was permanent, whether we expect to be in a low-interest environment (e.g. secular stagnation) for an extended period, and why we think labour productivity has declined during the crisis. The analysis of the state of the UK economy in the Autumn Statement is primarily political cheerleading for the recovery and does not consider these deeper questions.

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