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

Voting history

The future role of (un)conventional unconventional monetary policy

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Question 1: Do you agree that central banks should continue to use the unconventional tools of monetary policy deployed in response to the global financial crisis as part of monetary policy under normal economic conditions?

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Answer:
Agree
Confidence level:
Confident
Comment:
Monetary policy is a blunt tool. Asset purchases as used in the financial crisis allow central banks to be a little bit more targeted especially as the central bank also worries about macro-prudential policies (and we are still uncertain over the interactions and trade-offs in using different monetary and macro-pru tools). These conventional unconventional tools do not have to be the focus of monetary policy actions in more normal times. The expansion of central bank balance sheets has not lead to runaway inflation / inflation expectations (yet!). And since central banks still hold these existing large stocks of these assets on their balance sheets, they could quite easily be bought or sold in any operations.

National Living Wage and the UK economy

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Question 2: Do you agree that the new NLW will have a muted effect on wages and prices?

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Answer:
Agree
Confidence level:
Confident
Comment:
Some small upward pressure on inflation is potentially to be welcomed given how close to deflation we are at a time that interest rates are already low.

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Question 1: Do you agree that the new National Living Wage is likely to lead to significantly lower employment?

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Answer:
Disagree
Confidence level:
Confident
Comment:
The total number of employees earning the minimum wage is a relatively small proportion of total employment (around 5% according to the Low Pay Commission, but possibly lower using other estimates.) Moreover, firms can use price adjustments especially where the low paid jobs are complements to other workers earning more and not affected by the minimum wage change.

Brexit and financial market volatility

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Question 2: Do you agree that the possibility of Brexit significantly increases uncertainty and volatility in financial markets and the economy in general?

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Answer:
Agree
Confidence level:
Very confident
Comment:
While Sterling seems to be the main variable reacting to the uncertainty about the likelihood and costs of Brexit, I expect that other financial variables will react too in the coming months as information is revealed. The holding of a referendum has been known for some time. However the uncertainty has been crystallised by the announcement of the precise date of the event, together with the revelation of what concessions the EU has offered for continued UK membership of the EU (and the ensuing picking of sides by prominent politicians). While they won last year's election with a majority, the Brexit question threatens to tear the Conservative party apart adding heightened political uncertainty to (rising) economic and financial uncertainty. It will be interesting to see how business and consumer confidence surveys react in the months leading up to the referendum to see how much of this volatility affects real activity.

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Question 1: The value of the pound fell sharply this week. Do you agree that the public debate on Brexit can be expected to (continue to) lead to a substantially higher level of exchange rate volatility in the upcoming months?

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Answer:
Agree
Confidence level:
Confident
Comment:
There are 120 or so days until the June Referendum on Brexit. The costs of Brexit on growth and Sterling are highly uncertainty as it is, but they could be large. Given that the outcome of referendum is extremely close and difficult to call, any relevant new information in the coming months (such as new polls and changing public opinion) will see markets updating their beliefs regularly. Sterling seems to be the main variable reacting to the uncertainty meaning volatile beliefs will lead to volatile exchange rates. Of course, if polls start to indicate a clearer outcome, particularly for staying in, the volatility would subside. But I don't see such being clarity as likely.

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