Jagjit Chadha's picture
Affiliation: 
National Institute of Economic and Social Research
Credentials: 
Professor of economics

Voting history

Deal or no deal: The Greece standoff

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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:
Disagree
Confidence level:
Confident
Comment:
The counterfactual of no agreement is likely to lead to even worse output in the short run with default and possible Euro exit. In the long run structural reforms are necessary and the debt levels are clearly too high both of which will bear down on output whatever happens.

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:
Neither agree nor disagree
Confidence level:
Very confident
Comment:
Even if something is feasible it may not be the best thing to do. We have a number of alternatives to negative interest rates per se: asset purchases, signalling about the stance of policy with forward guidance and even managed depreciation of the exchange rate. To some extent the zero lower bound as a return to cash will always offer an alternative to negative returns on electronic money. So I am not sure we necessarily need to move to a regime that encompassed negative interest rates but would certainly encourage any work that spelled out the options.

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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:
Agree
Confidence level:
Confident
Comment:
Commercial banks' reserve accounts at the Bank of England are essentially deposits by banks in a sterling current account. Currently, under the quantitative easing regime all of the £300 bn-odd reserves are remunerated at Bank Rate. At present the quantity of these deposits mostly reflects supply-related injections resulting from asset purchases. Prior to the start of QE, the quantity of reserves tended to reflect the demand for reserves and, following appropriate reform, may actually respond in a stabilising manner to negative interest rates. The ECB currently pays a negative interest rate (currently -0.1%) on its deposits and the Bank of England could consider how to introduce negative interest rates on these sterling deposits rather than returning to a form of quantity control.

The Importance of Elections for UK Economic Activity

Question 2: Do you agree that the outcome of the general election will have non-trivial consequences for aggregate economic activity (employment and GDP)?

Answer:
Agree
Confidence level:
Very confident
Comment:
If either of the main two parties form the government, then I would expect sound money policies to continue. But if the extremes end up having some undue influence or create a long period of uncertainty with the need for another election, then the hiatus may have the propensity to stall aspects of the recovery.

Question 1: Do you agree that the austerity policies of the coalition government have had a positive effect on aggregate economic activity (employment and GDP) in the UK?

Answer:
Agree
Confidence level:
Very confident
Comment:
I really do not like the term austerity, as I see these policies have essentially been those of "sound money": deficits have continued. But the final level of aggregate demand was really being set by the BoE with QE. Thus even looser fiscal policy might have meant less room for QE and with as a result more debt to sell to the private sector, at a risky juncture, long term interest rates may have reacted in way to offset much of the impact and ultimately delay the recovery. In the end it was a judgement about the appropriate policy mix and it is hard not to think that relatively tight fiscal policy - at least in terms of plans about the future level of public debt to GDP - and loose monetary policy was an appropriate choice.

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