Michael Wickens's picture
Affiliation: 
Cardiff Business School & University of York
Credentials: 
Professor of economics

Voting history

The Future of Central Bank Independence

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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?

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Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
Recently this has obviously not been true even though central banks have chosen to become flexible inflation targeters. The traditional argument that governments prefer more economic growth to less will always have its effect when there is a need to reduce inflation. This is not a current problem.

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

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Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
In recent years many central banks have exceeded their mandate (eg the BoE and the ECB) by trading off their inflation target with targeting real variables such as unemployment and growth. As they have only one instrument and, in effect, two targets, this implies trading off the two and hence making political judgements. Being unelected, yet making political judgements it is only a matter of time before governments either have to alter their mandates or remind them of their primary task. The point about targeting inflation, the ususal mandate, is that a country with a floating exchange rate need a nominal anchor. This can be provided most effectively by delegating monetary policy to central banks. Allowing central banks to undertake broader macroeconomic policy when they don't have the tools is an abdication by government of macroeconomic management. There is no justification for this in the UK - even though the Treasury seems to have run down their macroeconomic expertise alarmingly and is probably no longer properly equipped to conduct macroeconomic policy. Their erroneous assessements about the effects of Brexit is a good example of this lack of expertise.

German Council of Economic Experts' view of ECB policy

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

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Answer:
Strongly agree
Confidence level:
Extremely confident
Comment:
This is obviously correct; there are a large number of structural problems that need to be addressed in order to stimulate growth. The euro is preventing countries from restoring international competitiveness; using internal deflation to restore competitiveness is very costly. Labour markets need reform. The banks in several countries are close to collapse. Capital markets need to work better. Fiscal policy is constrained by huge debts and large expenditures.

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

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Answer:
Agree
Confidence level:
Confident
Comment:
As in other countries, the ECB's loose monetary policy has helped the financial sector and improved fiscal budgets by reducing government debt interest payments. But it hasn't led to an expansion of private borrowing, the key to restoring economic growth. This policy has now reached the end of the road and is no longer appropriate. In its defence the ECB may with good reason claim that it is still the only game in town. What is required is an increase in private sector expenditures. What has happened is that all eurozone countries have instead increased private sector financial balances. Private savings are over 13 per cent of GDP in The Netherlands and nearly 9 per cent in Germany.

German current account surpluses

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Question 2: Do you agree that the German government should increase public spending given its persistently large current account surplus and given that it is part of the Eurozone?

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Answer:
Disagree
Confidence level:
Very confident
Comment:
As explained in my answer to question 1, German public spending is not the problem. It is the single currency and large German and Dutch private sector financial surpluses.

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