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

Voting history

Market Turbulence and Growth Prospects

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Question 1: Do you agree that economic growth prospects for the global economy have seriously deteriorated?

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Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
Prospects for global growth have not deteriorated noticeably in the last six months. The slowdown in growth in China is likely to have a limited impact on demand in OECD countries. Low oil prices stimulate spending on other goods and boost demand in oil consuming countries. The prospect for sustained low oil prices appears to have led to a reduction in equity holdings by some oil related sovereign wealth funds. The sovereign wealth fund selloff appears to have been a factor behind stock market turbulence. Equity market declines only have a significant impact on demand when they spill over in to the solvency of financial institutions. This does not appear to be a significant problem in OECD countries. The Chinese banking system may face problems after the bursting of the stock market bubble, but this is unlikely to cause major problems for OECD economies. The OECD economies are more insulated from Chinese financial markets than they are from Chinese trade. Even if growth slows there remains significant space for a temporary fiscal expansion in in most OECD countries.

China’s growth slowdown: likely persistence and effects

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Question 2:

Do you agree that if the Chinese slowdown turns out to be persistent, it will have a significant impact on UK growth (say, in the order of a few tenths of a percentage point) and/or it will justify a material change in monetary policy (for example, in terms of the timing and speed of a return to ‘normal’ interest rates) and fiscal policy (for example, in terms of the timing and speed of fiscal contraction).

Answer:
Agree
Confidence level:
Confident
Comment:
A persistent slowdown reduces trend growth, and the impacts will be very small. Two percent off trend Chinese growth would reduce UK trend growth by at most 0.1 per cent. However, the risks the Bank refer to are cyclical, not structural. If the cycle downturn is strong this will slow UK growth. The magnitude might be twice as high for the demand cycle as for the supply trend effect

ECB's quantitative easing

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Question 2:

Do you agree that the structure of the ECB's QE programme makes the Eurozone more fragile and increases the risk of one country leaving the euro?

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Answer:
Disagree
Confidence level:
Confident
Comment:
The Eurosystem’s risk sharing agreement reduces the risk of a Grecian slide in to unsustainability and hence makes monetary union more robust. The European Monetary Union is made up of multiple sovereigns and hence it must have different rules from the US monetary union which has one sovereign. If the US Federal Reserve system buys US government bonds and the US government defaults on those bonds it is liable for the losses made by the FRB. There is no real gain to the US government. Under current arrangements if a European government defaults then the losses within the Eurosystem will be the liability of the issuing government, exactly as in the US. If the risk sharing arrangement within the Eurosystem were different then the taxpayers behind the non-domestic holders of the defaulted bonds would have to pay a ‘tax’. Hence there is a risk that excess debt would be issued by countries trying to game the system.

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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:
Disagree
Confidence level:
Confident
Comment:
Government deficits are constrained by political costs, and if debt is held abroad the costs of default to domestic residents and politicians are lower. Hence any scheme that increases foreign holdings of government debt raises the risk of default. We have just seen this in the case of Greece, where foreign holding dominated the debt stock. A QE programme without a risk sharing agreement that left default liability with the issuing country could be seen as more likely to be gamed by some players and hence could involve higher borrowing costs for everybody. I would judge that the positive effect of constraining excess debt issuing would outweigh the negative (single country) effects of any asymmetries in existing risks. A clear allocation of the default risks reduces default probabilities and hence borrowing costs on average.

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:
Strongly Agree
Confidence level:
Very confident
Comment:
Debt repayments will fall. The agreement will almost certainly lengthen the period of debt to maturity, reducing repayments. There may also be some debt forgiveness. However, the larger the default component, the more costly will borrowing be for the Greeks in future.

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