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

Voting history

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.

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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