Ricardo Reis's picture
Affiliation: 
London School of Economics and Columbia University
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:
Strongly agree
Confidence level:
Confident
Comment:
Independent, inflation-targeting, central banks have had an extraordinary track record of success in the XXIst century at fulfilling the main part of their mandate: controlling inflation. Across the OECD, inflation has been low and stable, in spite of a myriad of shocks. Moving away from this regime can only do worse, because better would be hard. (I am only not very confident in my answer because worse may mean deflation instead of high inflation.)

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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:
Agree
Confidence level:
Not confident
Comment:
It depends, first and foremost, on political developments, which I am not competent to forecast. Yet, the rise of populism in the western world in 2016, the recent electoral success of authoritarian politicians, and the public relations campaign against experts and knowledge, all point to pressure on attacking independent technocratic institutions and reducing their power, including the central bank.

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:
Disagree
Confidence level:
Confident
Comment:
The structural problems are so clear and have been identified so many times by so many, that it is hard to argue that they carry a "mask". So, I have trouble moving to the next question of who is providing the mask in the first place. More importantly, the ECB's mandate is to keep inflation under control. See figure 2 here (https://ideas.repec.org/p/cfm/wpaper/1626.html); the ECB has done a very good job keeping the price level growing at 2% per year on average, and that is the main thing it should worry about.

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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:
Disagree
Confidence level:
Confident
Comment:
Given current euro-area estimates of economic slack and inflation in the near term, I would not describe ECB monetary policy as "extraordinarily loose". Moreover, among the many tools employed by the ECB right now, I would argue that some may be discontinued, but others should be maintained and expanded, and new ones should be implemented, so it is hard to agree that all of it is no longer appropriate. More narrowly, if we mean that the current level of the interest rate (the deposite facility rate) should be raised, then I (weakly) disagree; I don't see the obvious benefits of raising rates right now in the euro-area.

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:
Agree
Confidence level:
Confident
Comment:
The European institutions regularly demand that countries with high fiscal deficits reduce spending because (i) that is in the Maastricht Treaty, and (ii) because thigh deficits come with increasing public debt, higher chances of a sovereign default, and enormous political pressure on the no-bailout clause of the Treaty as we saw a few years ago. The Treaties do not put the European institutions in charge of aggregate demand management. Therefore it makes perfect sense for there to be a pronounced asymmetry between requiring the reduction of fiscal deficits, but having nothing to say about fiscal surpluses. Now, given current conditions in the Eurozone, it seems likely that both Germany and the rest of the EA would benefit from some fiscal expansion in Germany (e.g., http://www.nber.org/chapters/c13784 and http://www.nber.org/chapters/c13786.pdf). Given the increase in the primary surplus since 2004, there also seems to be some room to do so.

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