Ray Barrell's picture
Affiliation: 
Brunel University London
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 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:
Strongly agree
Confidence level:
Extremely confident
Comment:
The UK financial sector is likely to suffer significantly if we leave the EU. Passporting rights do matter, and access to the ECB infrastructure was important during the 2008-9 crisis. The loss of both will reduce efficiency and cost market share. More importantly, the current EU financial regulation environment has a single market in financial services that does not coincide with the regulatory area under the control of the ECB. Although this is unwise, it is of benefit to the UK. Once the UK has left the EU the ECB will tidy this up, and the UK financial system will find itself with the same access as the US, and hence firms will move. The long run impact on London will be significant and negative, but at least that means we will not need a third runway at Heathrow.

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:
Very confident
Comment:
Additions to the monetary policy toolkit are being discussed because real interest rates are very low, and in a period of low inflation this may mean nominal rates become negative. The central bank can only significantly affect the real rate of interest in the short run, although the inflation target may also have a marginal impact on it in the long run. If we are worried about low real rates for a sustained period, then we should consider the balance of saving and investment, both globally and locally. If real rates are too low for comfort we can raise them by changing this balance, and the most effective way to do that would be to increase government spending relative to receipts. This policy is available in most advanced economies, as there are no real worries about debt default in the US, the UK, Germany, Canada or France. Conventional and current unconventional monetary policies will then become easier to operate. However, this is not Friedman’s ‘helicopter money’. That would involve exactly what it says, the random dispersal of cash to individuals to induce them to spend more. Its advantage is that there is political interference in the process of helicopter drops, unlike in the design of government spending programmes. A drop programme does not need prior design. There are however suggestions around that new policies, such as large scale equity purchases through blind asset funds (to avoid political interference in the equity markets) would be wise. The design would require careful legislation, and would almost certainly be subject to capture by enthusiasts for a new interventionist economic strategy. However, an equity based tool seems too complex for our needs given that simpler solutions can be found within the current set of tools.

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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:
Extremely confident
Comment:
Monetary policy has normally operated at the short end of the yield curve, whilst the long end is probably more important for both wealth effects and investment decisions. There is a strong case for operating in the commercial paper market as well as the government market as effects may be more directly felt. Stimulating or constraining the economy by operating only at the short end is particularly effective in financial markets where many individuals and firms are liquidity constrained, and this may be less common now than it was in the 1950s. Changing financial constraints, wealth evaluations and investment decisions are all reasonable parts of a central banks' toolkit in normal times. The long end has become more important in the recent period of very low short rates. Central banks should look at the situation they find themselves in and operate where it is most appropriate. Of course such actions should be two sided, so that accumulations of assets should eventually be run down.

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:
Strongly agree
Confidence level:
Very confident
Comment:
Real wages will rise marginally, whilst the impact on prices dpends on the Bank's reaction.If it is wise there will be no effect.

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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:
Confident
Comment:
An increase in the minimum wage is almost certain to have a negative impact on employment in the UK, although the vast majority of jobs covered will not be affected. Estimates of those to be covered by 2020 vary between 1 million and 3 million, and up to 10% of the jobs covered might disappear. There is an ongoing dispute over the impact of minimum wages on employment, with most of the evidence using US data. It seems likely that there is a small negative effect there. The UK is a more open economy with fewer firms with market power than in the US, and both make the demand for labour more elastic, and hence the effect of minimum wages will be higher. This will be particularly true in sectors such as agriculture where there are many producers in the rest of the EU who compete with no barriers. In addition, some public sector employers are budget constrained, and any rise in wages in social care, for instance, will be fully reflected in reductions in employment.

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