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

Voting history

The Future of Central Bank Independence

====================================================================

Question 3: More generally, do you agree that it is desirable to maintain central bank independence? Again focus on the near future, say next 48 months.

====================================================================

Answer:
Strongly agree
Confidence level:
Very confident
Comment:
As outlined above, I believe that monetary policy and other central bank policies should be kept free of manipulation for political gain. I also believe that monetary policy independence should be maintained to avoid concerns that that government is trying to regain control of monetary policy for such manipulation.

====================================================================

Question 2: Do you agree that the traditional argument that less central bank independence leads to higher inflation will (still) be relevant over the next 48 months in Western economies?

====================================================================

Answer:
Disagree
Confidence level:
Confident
Comment:
I don't expect that central bank independence, or a reduction in it, will a main driver of inflation developments in the coming 48 months. Nor do I agree that some increased government involvement in central bank affairs would make impossible the implementation of a path of policy that avoids the classic inflation biases that independence helped address. The key lessons of the central bank independence literature are that monetary policy, and I believe by extension other central bank policies, should be kept free from manipulation for political gain. The expanded remit of central banks warrants greater accountability and perhaps, in some cases, it would necessitate more direct government involvement. But this does not mean that inflation flighting ability of the central bank will necessarily suffer. It is already the case that central banks do not have independence in all policy realms. For example, I believe the BoJ can be made to intervene to affect the exchange rate at the request of the government despite its monetary and legal independence.

====================================================================

Question 1: Do you agree that central bank independence in the Eurozone and the UK will decline over the next 48 months?

====================================================================

Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
I agree that there will be continued pressure on central bank independence in both the UK and eurozone. However, I don't know how successful these political campaigns against central banks will be. The ECB already has strongly ingrained goal and instrument independence which is going to limit the scope to reduce independence. Moreover, while Balls, Howat and Stansbury (2016) argue that we now need some greater coordination with fiscal authorities when monetary policy is at, or near, its lower bound, this is difficult in the eurozone in the absence of a central fiscal authority.

German Council of Economic Experts' view of ECB policy

====================================================================

Question 2: Do you agree that the ECB's monetary policy masks structural problems of member states?

====================================================================

Answer:
Agree
Confidence level:
Confident
Comment:
In the absence of the current loose monetary stance, the euro-area economy would be considerably weaker and one of the major causes of this underlying weakness are structural problems that warrant attention in the form of structural policy reforms. So it is true that ECB monetary policy is partly off-setting structural problems. However, as I said above, the fact that structural reforms are needed is not, in my view, a reason for the ECB to ignore it's primary objective.

====================================================================

Question 1: Do you agree that exceptionally loose monetary policy by the European Central Bank is no longer appropriate?

====================================================================

Answer:
Strongly disagree
Confidence level:
Very confident
Comment:
The appropriateness of ECB monetary policy must be judged by whether or not it is likely to contribute to the achievement of the central bank's objectives. These objectives are clearly laid out in Article 127(1) of the Treaty on the Functioning of the European Union. Price stability is the over-riding objective and only subject to achieving that should the ECB look to support the other objectives of the EU. In the absence of the current loose monetary policy, the risks of a prolonged deflation would be even greater and hence the ECB is right to maintain that monetary stance. That structural reforms are necessary is also right, but it is not the role of the ECB to suffocate euro-area economies, jeopardising price stability, in order to create incentives for the governments to reform.

Pages