Ethan Ilzetzki's picture
Affiliation: 
London School of Economics

Voting history

ECB's quantitative easing

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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?

Deal or no deal: The Greece standoff

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Question 2: Do you agree that Greece would be better off defaulting right now rather than signing to the agreement under consideration?

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Answer:
Disagree
Confidence level:
Not confident
Comment:
An outright Greek default on the IMF might unleash an economic hurricane on Greece and is a very risky strategy.

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Question 1:  

Do you agree that, on balance, the implementation of the agreement as outlined in media reports will have a non-trivial negative effect on Greek GDP?

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Answer:
Agree
Confidence level:
Confident
Comment:
Based on current reports, much of the tax increases will be in the form of labor taxes, with increases as large as 4%-points. With unemployment in Greece at Great Depression rates, such tax increases cannot possibly help. Reform of the Greek pension system is important, but indiscriminate cuts decided in midnight meetings could also be very costly.

Monetary policy and the zero lower bound (ZLB)

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Question 2: Do you agree that the benefits of reforming the monetary system to allow materially negative policy interest rates outweigh the possible costs?

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Answer:
Strongly Disagree
Confidence level:
Extremely confident
Comment:
It is neither desirable nor necessary to reform payment systems in order to lower interest rates further. The central bank should raise its inflation target to 5% and will gain the ability to lower the real interest rate by 300 basis points below the rates it currently can. There is no evidence that a higher inflation target has any real costs, and many emerging markets have done so successfully.

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Question 1: Do you agree that it is feasible for the UK authorities to change the monetary system so that materially negative policy interest rates could be safely implemented? (In answering, you may wish to explain your reasons and define your view of 'material')

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Answer:
Strongly Disagree
Confidence level:
Extremely confident
Comment:
This proposals are ivory tower ideas that should not be attempted. The move to electronic money should occur due to the relative costs and benefits of transacting with these new technologies, not by fiat to allow the central bank to conduct an unconventional policies. Stamping money and the variable exchange rate ideas have enormous transactions costs that would strongly outweigh the benefit of dropping the policy rate by 50 basis points.

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