Ethan Ilzetzki's picture
Affiliation: 
London School of Economics

Voting history

Autumn Statement & Charter for Budgetary Responsibility

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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.

China’s growth slowdown: likely persistence and effects

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Question 2:

Do you agree that if the Chinese slowdown turns out to be persistent, it will have a significant impact on UK growth (say, in the order of a few tenths of a percentage point) and/or it will justify a material change in monetary policy (for example, in terms of the timing and speed of a return to ‘normal’ interest rates) and fiscal policy (for example, in terms of the timing and speed of fiscal contraction).

Answer:
Neither agree nor disagree
Confidence level:
Not confident at all

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Question 1:

Do you agree that the Chinese economy is likely (say more than 50% probability) to maintain in the medium term (say, for at least ten years) a rate of annual growth exceeding 6%.

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Answer:
Disagree
Confidence level:
Not confident at all

ECB's quantitative easing

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Question 2:

Do you agree that the structure of the ECB's QE programme makes the Eurozone more fragile and increases the risk of one country leaving the euro?

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Answer:
Agree
Confidence level:
Confident

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Question 1:

Do you agree that the design of the ECB's QE programme reduces its effectiveness? 

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Answer:
Agree
Confidence level:
Very confident
Comment:
To answer this question one needs first to consider purpose QE might serve. My view is that QE works because it might reduce longer-term or riskier market interest rates when short-term risk-free interest rates have hit the zero lower bound. In this respect, the purchases of German and French sovereign debt--whose returns have been close to zero throughout the crisis, is trading cash for what is being priced as a perfect substitute. (If anything, the market is signalling that there is a shortage of core-Eurozone bonds.) Thus a large part of the purchases serves no purpose. The risk-sharing agreement itself has two disadvantages. The first, indicated in the question, is that it might reduce the risk premium on periphery Eurozone sovereign debt by less than it otherwise would. This is probably true on the margin, but this would have been priced in to yields by now. With yields of periphery Eurozone sovereign debt around 2%, the market shows no indication of this concern. My greater concern is the signal this sends for the medium-term viability of the Euro. What does it signal to the world when ECB policy is explicitly designed to insure core-Eurozone countries against risks that are only relevant if the Euro collapses? If the EU is not willing to bet on its survival, who should?

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