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

Voting history

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:
Agree
Confidence level:
Confident
Comment:
China is the UK’s second largest non-EU import partner, so it is hard to see how a slowdown in China would leave the UK unscathed. According to the ONS, China is also the 6th biggest destination for UK goods exports. In this light, I can easily see the UK catching a cold when China sneezes.

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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:
Confident
Comment:
History tells us that growth in excess of 6% p.a. for a period of over 10 years is typically only achieved when a country is either in transition or recovering from a particularly nasty shock (e.g. war). Growth in TFP alone is not sufficient to maintain such a high growth rate. The question then is whether China is in one of the cases of transition or recovery. The latter seems implausible as a driver of growth, and any transition may be reaching its limit. I see the downturn in the Chinese leverage cycle as a particular risk. The financial markets in China are still not particularly integrated which may prevent China having its own “Lehman moment,” but Chinese stocks are still a long way from their June 2015 peak and further deleveraging is needed.

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:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
The lack of risk sharing within the ECB programme is in itself unlikely to increase the Eurozone fragility. Whilst this is true mechanically, it does show a more general lack of appetite for risk sharing within the Euro Area. If countries cannot agree to share risk on a fairly uncontroversial new programme then that does not bode well for the type of risk sharing reforms that will ultimately be needed to keep the Euro Area together.

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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:
Disagree
Confidence level:
Confident
Comment:
The aim of the ECB asset purchase programme is to stimulate economic activity by reducing long-term yields. Evidence from QE programmes in the US and UK suggests that this will indeed happen, primarily because assets of different duration are only imperfect substitutes and investors have a “preferred habitat”. That credit risk is not fully shared, though, is likely to push interest rates up in member countries with tight fiscal positions. However, with the bulk of the risk taken on by countries that do not have stressed fiscal positions, it is reasonable to expect only a marginal reduction in effectiveness of the programme. The change in risk sharing is an undesirable side-effect, but probably insufficient to doubt the efficacy of the medicine.

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:
Not confident

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