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

Voting history

Brexit: the potential of a financial catastrophe and long-term consequences for the UK financial sector

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Question 2: What is the probability that the UK experiences such a significant disruption to financial markets and asset prices following a vote for Brexit on 23 June?

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Answer:
11-30%
Confidence level:
Confident
Comment:
I think that Sterling would weaken but it already has somewhat so it is not clear there is a huge amount to go. The size of the effect on housing markets is very uncertain but also unlikely to occur quickly - Brexit would take up to 2 years to negotiate. Other markets, such as equities, will be affected in the run up but I hope that the resolution of the vote uncertainty may provide a potential offset to the diminished economic outlook following a Brexit vote. So I overall hope that there is not as significant a financial shock in the event of a Brexit vote.

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Question 1: Do you agree that there would be substantial negative long-term consequences for the UK financial sector if the UK were to leave the EU?

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Answer:
Agree
Confidence level:
Confident
Comment:
I think that part of the attraction of the UK financial markets - especially the City of London - is that it is a major financial centre in the EU. While I don't expect that banks or other financial institutions will simply pack their bags on June 24 following a Brexit vote, I do feel that their marginal expansion and hiring decisions for some of their operations will be toward EU member states. Over time, this will erode the overall size and importance of the UK financial markets. This is the negative impact. Nonetheless, I believe that the UK would still have a relatively large and active financial system in the years following a Brexit.

The future role of (un)conventional unconventional monetary policy

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Question 2:  Do you agree that central banks should operationalise the use of these alternative tools of unconventional monetary policy for use either in the near term, or in the future, as economic conditions warrant?

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Answer:
Disagree
Confidence level:
Not confident
Comment:
It is clear that central banks should be thinking about the practicalities of a number of alternative tools for possible future use, but I think I fall short of fully advocating their operationalization at the moment.

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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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