John Driffill's picture
Affiliation: 
Birkbeck College, University of London
Credentials: 
Professor of economics

Voting history

Deal or no deal: The Greece standoff

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Question 3: Do you agree that implementation of the agreement will lead to an expected decrease in Greek debt repayments?

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Answer:
Agree
Confidence level:
Confident
Comment:
It seems likely the EU will consider debt reduction in the near future. Debt reduction may occur whether the current agreement is implemented or not, of course, either through default by Greece, or negotiated with creditors. It seems that some debt relief will need to happen anyway.

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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:
Again it depends on the consequences of default, and the alternatives. Default wipes out existing Greek government debt, which is beneficial. But what then happens to access to borrowing in the future, to liquidity assistance from the ECB? If these disappear as a result of default, and if Greece then ends up introducing a new currency, the effects are likely to be a long period of dislocation and instability.

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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:
If the proposed tax increases are considered alone, all other things remaining unchanged, then yes, they will cause a fall in aggregate demand and GDP, at least for a while. But if they are taken in combination with the other parts of the package, unlocking the remaining bailout funds that can repay some IMF loans, allowing the ECB to continue to provide liquidity to the Greek banking system, as a prelude to debt write-downs in the future, and enabling less instability, then no, they will not cause a fall in demand, at least, not for long.

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:
Agree
Confidence level:
Confident
Comment:
It may be worth having the capacity to introduce some of these ingenious schemes, so as to be able to use them should it become necessary, i.e., if the equilibrium real interest rate goes very negative so that even a zero nominal interest rate (or the minus two or three percent per annum that could be achieved without changing the monetary system) leaves actual real rates too high to sustain full employment. It may be better though to engineer a boom and get inflation up to a higher level, so that positive nominal rates still leave the real interest rate low enough. It may be simpler to shift the target inflation rate up from two to four percent per annum. It may be preferable to introduce more radical redistributive polices, put more money into into the hands of the poor, and raise the equilibrium real interest rate that way.

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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:
It may be possible for the Bank of England to set interest rates of minus 2 or 3 percent per annum without changing the monetary system. It appears that the cost of holding cash in the vaults for large banks is substantial. I think minus 2 percent p. a. is 'materially negative'.

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