Martin Ellison's picture
Affiliation: 
University of Oxford
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:
Not confident

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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:
Confident

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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:
Agree
Confidence level:
Confident

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:
Strongly Disagree
Confidence level:
Very confident
Comment:
There are likely to be significant costs to changing the system to allow for negative policy rates, even such a change was feasible. First up, whilst the share of cash in transactions has already fallen to about half, there is considerable heterogeneity in the use of cash across different parts of the population. Part of this in generational, with my daughter almost never using cash for any payments whilst I still use cash for small to medium sized transactions. The subset of the population accustomed to using cash regularly would suffer disproportionate costs from the withdrawal of currency. Secondly, any transition to a new regime would need to be managed carefully so as not to endanger the reputation of the monetary authority. The Bank of England is already running unconventional policies on an unprecedented scale, so adding another untried and untested policy measure is questionable at this time. It would be better to fully explore the consequences and limits of Quantitative Easing before engaging in reform of the monetary system.

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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:
Strongly Disagree
Confidence level:
Confident
Comment:
Changing the monetary system to allow for negative policy rates would take UK monetary policy into unchartered waters, fraught with potential risks. One of the main risks is a loss of control of the monetary base, either because currency has to be abolished (which needs to be done at least with respect to high denomination notes as they otherwise dominate as a store of value) or because of the rise of digital currencies as stores of value and media of exchange, such as Bitcoin. On the latter, the central bank could potentially introduce its own digital currency, but even then fiat would have to be put in place to prevent the rise of competing digital currencies dominating offering non-negative rates. It is likely that mildly negative rates can be sustained due to the inconvenience of holding cash or digital currencies to store value, but anything below about -1% would be problematic.

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