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

Voting history

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:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
The direct effect of a slowdown in the Chinese economic growth on the UK economy has to be small. But the Chinese economy is important for the global economy (e.g. the share of Chinese imports in global imports is close to 10%). Thus, the Chinese economy is likely to have an impact somewhere and it also may negatively affect confidence. So there may be a chain of events such that there will be a non-trivial effect on the UK economy even though the direct effect is probably small.

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Question 1:

Do you agree that the Chinese economy is likely (say more than 50% probability) to maintain in the medium term (say, for at least ten years) a rate of annual growth exceeding 6%.

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Answer:
Disagree
Confidence level:
Not confident at all
Comment:
There seems to be consensus that there has been and will be a reduction in China's potential growth prospects. The World Bank and the IMF project that China's growth could slow down to numbers around 6%. I think that these forecasts do not sufficiently take into account that the downward risk is larger than the upward potential, so I am inclined to be a bit more pessimistic myself. Regarding downward risk, I am thinking of consequences of secular stagnation in developed economies or continued problems in the Eurozone.

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:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
I think this is impossible to tell. More risk sharing could be beneficial for countries getting into trouble, but less risk sharing may provide better incentives for countries to invest in their own future and reduce the chance they get into trouble.

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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:
Not confident
Comment:
QE involves taking government bonds out of the economy in exchange of liquidity. How risk regarding future price changes (and possible future defaults) is shared between countries has no effect on this operation itself and no direct effect on how these two changes make their way through the system. How Eurozone countries share risk (in general) is of course very important for economic developments in the Eurozone. However, the announced limited risk sharing for this round of QE is in line with previous policy actions and cannot have provided new information about the extent to which Eurozone countries are willing to share risk. So how does this matter for the ECB's effectiveness? Unfortunately, we really do not know how additional liquidity in the financial sector and a reduced stock of government bonds in the private sector affects real activity. Unless one thinks that this particular risk sharing arrangement has changed people's opinion on how risk in the Eurozone will be shared in general, it is hard to see how it affects the effect of this round of QE.

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:
Agree
Confidence level:
Confident
Comment:
Default typically does not mean that the creditors will get nothing back. How much the creditors get back will depend mainly on the strength of the Greek economy. It is difficult to know what will happen if no agreement will be reached, but agreements that will hurt the Greek economy will negatively effect the amount of money the creditors can expect. In fact, it could very well be the case that the creditors end up doing better if Greece does a partial default now and stops pursuing bad economic policies. Even better for the creditors would be if there would be an agreement where debt forgiveness is coupled with long-term structural reform.

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