Michael McMahon's picture
Affiliation: 
University of Oxford
Credentials: 
Professor of Economics

Voting history

Secular Stagnation

Question 1: Do you agree- making your own definition of secular stagnation clear if you disagree with that offered here- that it is more likely than not that the advanced Western economies have entered into a period of secular stagnation?

Answer:
Agree
Confidence level:
Confident
Comment:
If defined by a period of negative real interest rates and low growth, then I do believe that the major Western economies are likely to enter a period of secular stagnation. The part that I am uncertain about is the extent to which secular stagnation requires the cause to be weak demand and the extent to which what we are seeing now is purely a demand driven story. The current weakness of the economy likely gives rise to a negative output gap, but I doubt that output gap is that large - certainly much lower than the output gap implied by extrapolating pre-crisis trends. I think it is quite likely that not only has the level of potential GDP fallen, but so too has potential GDP growth. And that trend growth may remain subdued for the coming years.

Migration and the UK economy August 2014

Question 2: Do you agree that current government policies with respect to non-EU migration (including policies on students, skilled workers, and family migration) are effective in maximizing the gains to the economy from migration while minimizing any possible negative impact to specific groups?

Answer:
Agree
Confidence level:
Confident
Comment:
To the extent that most of the immigration benefits come from these groups, those policies seem like they aim to focus on the areas where most benefits would be reaped. Of course, even these types of migrants can impose congestion costs on the economy, especially where they are geographically concentrated in a few areas and when these areas are already under strain in terms of infrastructure and housing (such as London). It is difficult to isolate the effect of these migrants on house prices and other forms of congestion but government policies should also ensure that efforts are underway to address these costs at the same time.

Question 1: Do you agree that migration to the UK can be expected to be beneficial for the average income of current UK inhabitants in the upcoming decade?

Answer:
Agree
Confidence level:
Confident
Comment:
Immigration, especially higher skilled workers who make up over half of the migration inflow from abroad recently, brings benefits to the UK labour market that make it more attractive for firms to locate, remain or expand in the UK. This has benefits for activity and employment of those in the UK beyond the immigrants - the net migration numbers for work, as measured by work visas issued (+156,000 in the year to March 2014) are small relative to the total pool of employment in the UK (around 30m people). Of course, I am happy to acknowledge that my view may be considered biased because, like many others responding to this survey, I am part of the pool of UK-based immigrants (since 2000). Of course, as an EU citizen I have simply moved to another part of the union and so should be treated in the same was a Scot moving to London, or someone from Wales moving to Northern Ireland. However, often the political discussion of migration does not treat these cases equally as the public discussion often alludes to migration from the EU as the type of migration that is displacing low-skilled workers in the UK. Moreover, I see other benefits from immigration. Working in third level education I see large numbers of foreign students who come to the UK to study and these students benefit the sector both financially and also by bringing a valuable global perspective to the classroom.

UK House Prices and Macro-Prudential Policy July 2014

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Question 2: When housing-related risk is deemed excessive from the viewpoint of financial stability, do you agree that the correct response is to deploy macro-prudential tools, leaving interest rates focused on the needs of inflation and aggregate real activity?

 
Answer:
Agree
Confidence level:
Confident
Comment:
I agree to the extent that specific housing-related risks are better targeted using less blunt macro-pru tools. However, I do think that there is a role for standard monetary policy tools to contribute to reduced housing demand as part of any broader attempts to reduce demand in the UK economy in order to control inflation.

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Question 1: Do you agree it is time for more robust policy action to prevent a build-up of excessive housing-related risk?

 

 
Answer:
Disagree
Confidence level:
Confident
Comment:
Rather than focus on house price inflation which is typically expressed as relative to 12 months ago, I think the focus needs to be on the level of house prices. Recovering house prices have likely played an important role in rebuilding the household balance sheet and therefore played an important part in the consumption recovery. The regional distribution is also important. Within London, there are boroughs in which real house prices are about double what they were in 2006. In other parts of the country such as Coventry, real house prices, despite house price inflation picking up in the last 12 months, remain below the 2006 level. So while it is important to monitor the developments in the UK housing market, I believe that care must be taken not to act too aggressively, too soon in an attempt to target house prices. The focus must remain on the medium term risks to household activities and, of course, financial stability.

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