Wouter Den Haan's picture
Affiliation: 
London School of Economics
Credentials: 
Professor of economics

Voting history

Euro Area Deflation and Risk for UK Economy May 2014

Question 1

Do you agree that there is a significant risk of a sustained deflation across the Euro Area in the coming two years?

Answer:
Agree
Confidence level:
Confident
Comment:
Although there are some signs of recovery in the Euro Area the recovery is weak and structural problems remain. Therefore, we cannot disregard the possibility that the Euro Area will go through a sustained period of low or no growth similar to Japan's experience.

Prospects for Economic Growth in the UK April 2014

Question 2

Do you agree that, in the wake of the financial crisis, any downward adjustment to the expected average annual long-term growth rate of the UK economy is likely to be by less than 0.25 percentage points?

Answer:
Disagree
Confidence level:
Not confident
Comment:
I am afraid that the financial crisis could cast a shadow for a substantial period on UK economic growth and I would not be surprised if this lingering impact would reduce UK growth by more than 2.5 percentage points over the upcoming ten-year period. In addition to the effects through continued problems in the Eurozone, I am thinking of (i) negative effects due to the unwinding of unconventional monetary policies (either direct negative effects or negative effects induced by the related uncertainty) and (ii) lack of serious regulatory reform and other substantial changes in the financial sector, which means that we cannot exclude other disruptions in the foreseeable future.

Question 1

The long period of slow or negative growth might imply that there is a substantial output gap in the UK economy.  Do you agree that there is currently a larger output gap than the OBR estimate to the extent that the shortfall in output relative to capacity is 3% or greater?  

Answer:
Disagree
Confidence level:
Not confident
Comment:
The main indication that the UK economy may have quite a bit of spare capacity is that labor productivity is very low. That is, although the number of employed is not that low, workers do not produce very much. However, the reasons for the low productivity are far from understood. For example, labour hording cannot be a very important part of the explanation, since the strength of employment since mid-2010 is due to greater flows into employment not due to reduced flows out of employment. There are other candidate explanations, but at least an important part remains unexplained. (A useful discussion can be found at http://www.bankofengland.co.uk/publications/Documents/inflationreport/ir12nov.pdf, page 33). Until we understand better what is behind the low productivity, I think it would be better not to count on a substantial amount of spare capacity.

Responsible long-term fiscal policy (pilot survey)

Second question:

To help ensure that advanced country governments pursue responsible fiscal policies, countries should adopt formal rules for limiting structural deficits, which are supported by primary legislation or constitutional reform.

Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
The answer is not the same for all countries. "Rules" that limit structural deficits make it possible to be in a strong financial position when crises hit. Constitutional amendments allow for little or no flexibility to respond to unforeseen events. This is an important drawback. In some countries, however, constitutional amendments may be necessary to impose credible discipline.

First question:

To help ensure that advanced country governments have sufficient flexibility to respond to future crises, it is important that finance ministries aim for a ratio of public debt to GDP that is substantially less than 60% in normal times.

Answer:
Strongly Agree
Confidence level:
Very confident
Comment:
In Iceland, Ireland and Spain, low initial debt to GDP ratios did not prevent debt to GDP ratios reaching problematic levels. Without such low initial debt to GDP ratios, however, these countries probably would have faced larger and more persistent problems. Moreover, if all countries in the Euro area would have started out with a debt to GDP ratio below 30%, then the Euro zone debt crisis would not have been so severe and possibly would have been over by now.

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