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

Voting history

Monetary policy and the zero lower bound (ZLB)

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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.

The Importance of Elections for UK Economic Activity

Question 2: Do you agree that the outcome of the general election will have non-trivial consequences for aggregate economic activity (employment and GDP)?

Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
There is heightened uncertainty in the run up to the general election, which may continue for some time in the aftermath if the result is not clear or there are difficulties forming a new government. This will filter through to inflation and GDP to some extent, but of more importance is how much the new government is committed to fiscal austerity. The differences between party platforms are not huge in this respect, so the impact of the election on aggregate macroeconomic variables is likely to be muted.

Question 1: Do you agree that the austerity policies of the coalition government have had a positive effect on aggregate economic activity (employment and GDP) in the UK?

Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
The idea that fiscal contractions can be expansionary has largely been discredited. The work by Alesina, Favero and Giavazzi shows that it matters whether austerity comes about through rises in taxes or cuts in expenditure, but the evidence is that spending-based consolidations are at best neutral and that taxation-based consolidations are contractionary. There is scant support for spending-based austerity having a positive effect on output, and clear indications that tax-based austerity does not.

Transparency and the Effectiveness of Monetary Policy following the Warsh Review at the Bank of England

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Question 2: Do you agree that the Bank's proposal to release the policy decision, MPC minutes and (once a quarter) the Inflation Report all at the same time justifies a change in the structure of MPC meetings from two consecutive days to a process in which in the MPC meetings are spread out over seven days?
 
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Answer:
Agree
Confidence level:
Confident
Comment:
The practicalities of collating and processing minutes is likely to be a constraint that speaks for the revised timetable. It is imperative that information released by the central bank is of good quality, otherwise monetary policy would be injecting extra ‘noise’ into the economy. There is an obvious trade-off between the timeliness and quality of information, which the Bank of England’s proposal seems to address reasonably.
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Question 1: Do you agree that the simultaneous release of the policy decision, the enhanced minutes (including the voting record) of the MPC meeting and (in the relevant months) the release of the Inflation Report will facilitate inference on the likely stance of monetary policy?
 
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Answer:
Agree
Confidence level:
Confident
Comment:
The timely release of information relating to central bank actions should improve the ability of the market to infer the stance of monetary policy, provided that markets are able to process that information efficiently. The most prominent challenge to efficiency is the ‘beauty contest’ idea, first formulated by Keynes and updated by Morris and Shin. There, the concern is that market participants discount their private information and instead become ‘fixated’ on the information provided by the central bank. Whilst this is an elegant and rational theoretical construct, I have reservations about whether this is really a regular issue for the Bank of England. Several academic papers have shown the fragility of the result in slightly different settings, e.g. in 2004 Hellwig argued in a working paper that releasing public information is unambiguously good because the benefits of reduced price dispersion dominate any costs of markets potentially becoming fixated.

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