Ricardo Reis's picture
Affiliation: 
London School of Economics and Columbia University
Credentials: 
Professor of economics

Voting history

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:
Very confident
Comment:
It definitely increases uncertainty. There are few other political events that would have such a direct and immediate effect on the economy, and especially on international capital and trade flows. I would further expect that investment of firms based in the UK with significant international relations is delayed until the outcome of the referendum is clear.

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Question 1: The value of the pound fell sharply this week. Do you agree that the public debate on Brexit can be expected to (continue to) lead to a substantially higher level of exchange rate volatility in the upcoming months?

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Answer:
Agree
Confidence level:
Very confident
Comment:
Brexit or not should have a large impact on capital flows and trade balances of the UK. Thus, it should have an effect on the sterling exchange rate, at least relative to the euro. Given how close polls are, the public debate should lead to sharp movements in the probability of Brexit, and these should be followed by exchange rate volatility. But we can look at market data to check this hypothesis, by seeing whether the prices of volatility swaps (or other ways to hedge against this risk) have gone up. I don't have that daily data available in my office, but my impression from other data publicly available is that the answer is yes.

Market Turbulence and Growth Prospects

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Question 2: Do you agree that the falls in share prices, low oil prices and the slowdown in some emerging market economies will have a significant negative impact on the UK’s economic recovery?

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Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
The UK has a significant exposure to the EU, and the EU economy is speeding up, even if at a slower rate than one would like after the slump of the past few years. Likewise for the American economy, another important partner for the UK. Therefore, the slowdown in emerging markets is partly offset, and it is hard to forecast whether the prospects for the UK economy have gotten much worse (as opposed to just slightly worse) relative to a few months ago.

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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:
Agree
Confidence level:
Not confident
Comment:
All pieces of data, from multiple financial markets, to surveys of households and firms, seem to show a lowering of growth forecasts for the world for 2016 relative to a few months ago. Moreover, we can already identify some shocks that should have an adverse effect. At the same time, any attempts to forecast growth, especially at the global scale, are done with not much confidence given the state of our knowledge. And, most forecasts are still for a recovery in the Us economy and, at a slower rate for the EU economies, relative to the recent past.

Autumn Statement & Charter for Budgetary Responsibility

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Question 2: Do you agree that the Charter for Budgetary Responsibility is helpful in underpinning the credibility of fiscal policy?

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Answer:
Strongly Agree
Confidence level:
Very confident
Comment:
Rules allow for credible, transparent, and thus effective policy. This particular rule both takes into account the need to pay for the debt, as well as the desire to respond to the economic cycle. Moreover, by setting regimes and limits, it still allows for considerable discretion in responding to different data while acknowledging that the Chancellor cannot perfectly target a value for the deficit. Of course the rule could be improved, but it is a decisive step in the right direction for fiscal policy.

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