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

Voting history

ECB's quantitative easing

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Question 1:

Do you agree that the design of the ECB's QE programme reduces its effectiveness? 

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
I think the important detail is what we are comparing. If we are comparing a US- or UK-style, single-central-bank implemented QE then I think the ECB programme may be somewhat less effective. It would also be better if the programme was a hypothetical one that absorbed more of the risk and included incentives to expand lending to the small and medium enterprise sector. This suggests an answer of "agree". But if the alternative is no programme at all, then I think the ECB design is more effective given the economic situation in the euro area. It has already taken a long time to get the compromised version into play, and by all accounts it was only with the concessions that the policy has come in. This suggests "disagree". I opted for the middle ground but should note that I welcomed the extra policy action by the ECB.

Deal or no deal: The Greece standoff

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Question 3: Do you agree that implementation of the agreement will lead to an expected decrease in Greek debt repayments?

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Answer:
Agree
Confidence level:
Confident
Comment:
I do not think that now is the right time to push for tax increases in Greek though clearly dealing with Greek tax compliance is an important long-term reform for Greece. In addition to the economic costs (Q1), there are huge political costs to the Syriza party to signing up to the current agreement. As such they would need to be given a pretty significant debt reduction to take home to appease the electorate in Greece.

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Question 2: Do you agree that Greece would be better off defaulting right now rather than signing to the agreement under consideration?

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Answer:
Disagree
Confidence level:
Confident
Comment:
While the adjustments under any creditor agreements will be hard, I believe that there will be an even larger short-term cost in Greece from a default, likely banking sector collapse and the adjustments while setting up a new currency where Greece to leave the euro.

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Question 1:  

Do you agree that, on balance, the implementation of the agreement as outlined in media reports will have a non-trivial negative effect on Greek GDP?

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Answer:
Agree
Confidence level:
Very confident

Monetary policy and the zero lower bound (ZLB)

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Question 2: Do you agree that the benefits of reforming the monetary system to allow materially negative policy interest rates outweigh the possible costs?

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Answer:
Agree
Confidence level:
Very confident
Comment:
Real interest rates in developed economies have tended to trend down over the last 30 years. Given the established norm of a 2% inflation target, this has meant that interest rates now hover much closer to the zero lower bound than they used to even in relatively neutral economic conditions. Given this, it seems all the more likely that the zero lower bound constraint will bind more and more regularly in future business cycles. One option is to raise inflation targets to push nominal interest rates away from the zero lower bound but to, for example, a 4% inflation target risks losing some of the hard-earned anchoring of inflation expectations. This is particularly likely if, after another 10 years, it is decided that actually a 6% target is suitable. While I am sure that any of the changes implemented would be controversial at the time of implementation, such a change of the system to allow negative real interest rates as a normal policy choice stands more likely to be a one-off change in system. And given the likelihood that monetary policy is constrained by the zero bound more and more often, a single interest rate policy that can set negative interest rates seems more desirable than permanently having central banks conducting large-scale asset purchases (especially if the central bank ends up holding ever larger shares of the pool of government securities).

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