Richard Portes's picture
Affiliation: 
London Business School and CEPR

Voting history

The Future of Central Bank Independence

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Question 3: More generally, do you agree that it is desirable to maintain central bank independence? Again focus on the near future, say next 48 months.

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Answer:
Agree
Confidence level:
Confident
Comment:
Some of the old literature less relevant today. But the balance of the political economy arguments favours independence, with the necessary qualification that there must be accountability. Formally, this is weak for ECB, but Draghi and colleagues put a lot of effort into communication, and that helps, even when there is some discord.

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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:
Neither agree nor disagree
Confidence level:
Confident
Comment:
Political pressure on ECB would, if effective, lead to lower inflation. But for Fed, higher inflation. For BoE, if the threat is indeed stagflation, unpredictable.

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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:
Political pressures heavy in both cases, and the central banks can't ignore them. Public trust clearly down, partly because of media scapegoating. Both banks now also responsible for micropru and macropru, which expose them further to political challenge. And BoE will have to deal with new (or old) macro conflict of rising inflation and slowing growth. So it will be tough out there, but the institutional framework for both banks is pretty strong and current leadership good, so resistant in both cases. Not clear how it will play out.

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:
Strongly disagree
Confidence level:
Extremely confident
Comment:
'Masks structural problems' by promoting economic expansion and price stability? Give me a break. They neither propose nor show any causal link. The only story is the 'moral hazard' argument - that governments feel less pressure to reform if they feel less pressure from the bond markets. Where is the evidence? The slowdown in reforms supposedly documented by the OECD is not based on any quantitative evidence. Even if one accepted it, one could argue that previous reforms had exploited 'low-hanging fruit', so it would be normal that the observed effort would slow down. Moreover, it is a common political economy argument (with some empirical support) that reforms are easier in the context of a reasonable pace of growth - otherwise there are too many losers. Did Mr Schaeuble write this report?

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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:
Strongly disagree
Confidence level:
Extremely confident
Comment:
The ECB has a single mandate, specified in the Treaty: price stability. The ECB itself has defined what that means: inflation close to but not exceeding 2 percent. It has manifestly failed to fulfill its mandate, and consequently by mid-2014 inflation expectations had become 'de-anchored'. QE stopped the slide, but the latest survey of professional forecasters (2016 Q3) shows 5-year ahead inflation expectations still at the level of 2015Q1. Unless the German Council of Economic Experts could argue that exiting from QE would raise inflation and inflation expectations, or propose alternative policies to fulfil the mandate, they should desist from ECB-bashing and let the ECB get on with trying to do its job.

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