Ray Barrell's picture
Affiliation: 
Brunel University London
Credentials: 
professor of economics

Voting history

Global risks from rising debt and asset prices

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Question 2: Is the loose monetary policy of major central banks responsible for the recent increase in global leverage or asset values?

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Answer:
Agree
Confidence level:
Confident
Comment:
Asset prices must reflect the future discounted value of earnings. Low interest rates driven by loose monetary policy lead to high asset values. However, low real interest rates over the last few years in the advanced economies are not mainly the result of central bank policies, and these have contributed to high asset values. As such, high asset values may in part be sustainable if real interest rates stay low.

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Question 1: Does the world economy face heightened risks arising from an excess of public and private debt and/or inflated asset prices?

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Answer:
Disagree
Confidence level:
Confident
Comment:
Serious risks to the world economy can come from excess debt. In the advanced economies public debt is generally safe, and has been falling. Private debt increases in the advanced economies are less worrying now we have a better capitalised banking system than in 2007. Asset price inflation has been mainly in equity markets, and as we saw with the collapse of the dotcom bubble, this is not a massive problem when it is reversed. There are always risks, but they do not look excessive.

Juncker's State of the Union Address

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Question 2: Do you agree that the euro has had more benefits than costs?

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Answer:
Strongly agree
Confidence level:
Very confident
Comment:
Removing exchange rate volatility encourages trade and investment, and this gain outweighs any costs for most countries. The euro cements this gain. It also removes power from local elites who use devaluation to their advantage, in part to avoid difficult decisions on structural change. Reducing expected volatility is the core reason for having a currency area. It has produced benefits, but perhaps some countries joined before they were ready.

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Question 1; Do you agree that euro membership should be compulsory for all EU member states?

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Answer:
Disagree
Confidence level:
Confident
Comment:
Membership of the Euro has both benefits and costs. For most countries the benefits from reducing barriers should outweigh the cost of losing exchange rate adjustment as a tool in extreme circumstances. Countries whose real exchange rate is affected by other factors than the rest may be better off outside whilst fixing their exchange rate to the euro for the short term. Commodity producers such as Norway (who are not in the EU) may benefit from this. So could the least advanced southern countries whilst they catch up with the rest of the EU.

Wages and economic recoveries

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Question 2: Do you agree that the different behaviour of UK real wages relative to Eurozone wages during the Great Recession is in large part due to the UK having different labour market policies?

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Answer:
Neither agree nor disagree
Confidence level:
Very confident
Comment:
Different labour market policies are only a part of the explanation of lower real wage growth in the UK than in Germany or France. Employment growth has been more rapid in the UK than in either France of Germany in the last decade, and real wages have fallen both relative to others and relative to the past. This would suggest a movement of the supply curve along a demand curve. If wages had not been flexible we might have seen more unemployment, and less labour force growth. The latter would have come from lower participation and from less inward migration. However, if the new labour had the same characteristics as the existing labour (skills, attitudes) we would expect to see an increase in the capital stock. If the increase in labour supply had been anticipated, then capital may have increased with labour, if the increase was not anticipated, the increase in capital would follow, generating demand. We have not seen an increase in the capital stock of anywhere near the needed proportions . This could be because the new labour is less useful, or because managerial incentives are holding back investment in favour of dividends. Both may matter. It is more likely that investment has been held back by the risk, and now the certainty that the UK would leave the Single Market. This will probably reduce productivity by six per cent as compared to where it would otherwise have been, and some of this we may have already seen,

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