Morten Ravn's picture
Affiliation: 
University College London
Credentials: 
Professor of economics
Head of Department

Voting history

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:
Neither agree nor disagreee
Confidence level:
Confident
Comment:
I think the issue is really that fiscal, monetary and macro pru policies need to be coordinated. There are situations - such as the current - where one set of instruments may become ineffective but we know that in these circumstances there will be other instrument that can emulate their effects which are still available. For example, fiscal devaluations can still be used as an instrument when the ZLB is binding for the short term nominal interest rate. Moreover, unconventional policies may be available but they do of of course have direct fiscal consequences and also impact on issues of direct importance for financial stability. So, I think the real issue is to formulate a framework that ensures consistency between different goals and coordination between different policy makers. Of course, in "normal times" these issues are rather straightforward so this really has to do with planning for abnormal circumstances.

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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:
Disagree
Confidence level:
Confident
Comment:
Under normal conditions, monetary policy should be aimed at addressing the inefficiencies that arise due to the existence of nominal rigidities of various sorts. Conventional policies should be the appropriate tools for this purpose. Using also unconventional policies would be a return to the fine-tuning policies of the past which was no big success to put it mildly. Moreover, it would make central bank communication very challenging and most likely be costly in terms of reputation. The one complication that I am not sure about is that there will be implications for monetary AND fiscal policy of the introduction of macro prudential policies. Exactly how this will play out is unclear to me but I can't see a clear reason for why it should pave the way for the use of unconventional policies in normal times.

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:
I would agree that it might be muted yet still positive. The wage and cost effects, though, might possibly vary over industries. One should also be aware that increases in wages may be associated with decreases in firms' investment in workers. At the end of the day, it would seem hopeful to believe that one can implement higher wages at the bottom of the wage distribution at no costs. This does not mean that the policy may not be right but it does mean that there will be costs.

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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:
Agree
Confidence level:
Not confident
Comment:
The cost of low skilled employment will rise and it is hard to believe in large monopsony power in all the industries concerned. So I think it is likely that employment will fall. One should also be aware of general equilibrium effects increasing costs of production in other industries making the UK less competitive. Of course, one also needs to look at how tax wedges are adjusted to get the full picture. So in the end, it is complicated but it would seem rather fairy-like to believe that a large increase in wages at the bottom of the distribution could be implemented at no cost of employment of the workers concerned.

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:
Strongly Agree
Confidence level:
Extremely confident
Comment:
If it becomes likely that Brexit is the outcome, one has to start considering about the implications of this. It is unclear what kind of deal the UK will get and what will happen to the rest of the EU. It is also unclear whether Brexit will trigger another Scottish referendum. So if Brexit becomes likely, volatility will almost surely increase significantly.

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