Martin Ellison's picture
Affiliation: 
University of Oxford
Credentials: 
Professor of economics

Voting history

Brexit and financial market volatility

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Question 1: The value of the pound fell sharply this week. Do you agree that the public debate on Brexit can be expected to (continue to) lead to a substantially higher level of exchange rate volatility in the upcoming months?

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Answer:
Disagree
Confidence level:
Not confident
Comment:
Most economists see exchange rates as random walks reacting to news. The question then is whether we expect a steady flow of news that will be significant enough for markets to react. The conclusion of negotiations between David Cameron and the EU was big news, as was the decision of Boris Johnson to come out in favour of Brexit, hence the exchange rate reacted. The only equally large event on the horizon is probably the referendum result itself, so I wouldn’t expect to see particularly large exchange rate movements before then. Most likely the pound will remain weakened or gradually regain its losses without drama, but forecasting future news is impossible.

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:
Agree
Confidence level:
Confident
Comment:
The UK is a mild net importer of hydrocarbons, so the fall in oil price should be marginally beneficial. Any possible positive effect of ultra-low oil prices is unfortunately likely to be dominated by growing risks in choppy world financial markets.

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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:
Agree
Confidence level:
Confident
Comment:
The ultra-low oil price reflects weakening demand and concerns about instability in oil supply as Saudi Arabia and other countries vie for influence in global energy markets. None of this is good news for growth in the global economy. Prospects are further weakened by turbulence in stock markets and a rise in uncertainty (the VIX has been climbing steadily since the start of the year).

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:
Neither agree nor disagree
Confidence level:
Confident
Comment:
The Charter is reminiscent of Gordon Brown’s famous “Golden Rules”, a framework that struggled to survive evolving demands as the UK was buffeted by internal and external shocks. It is always difficult to identify the beginning and end of the economic cycle, so micro-managing cyclically-adjusted fiscal policy through rules will inevitably be challenging. The inherent complexity in fiscal policy (as opposed to monetary policy, although the adoption of quantitative easing has made that more complex) also puts pressure on any rule-based approach. That said, it is laudable to write down the main objectives for fiscal policy as (i) sustainability of public finances and (ii) supporting monetary policy.

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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:
The evidence in Alesina, Favero and Giavazzi (2014 JIE) suggests that fiscal consolidations based on spending cuts have much lower output costs than those based on tax increases, so in pure GDP terms the plan for restoring government finances makes sense. However, it remains unclear whether the speed of fiscal adjustment is correct or what its distributional impacts might be. There is a possibility that premature fiscal tightening may jeopardise the recovery of the UK economy, and that welfare cuts affect some people disproportionally in what is ultimately one of the richest large countries in the world.

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