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

Voting history

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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Question 2: Do you agree that Greece would be better off defaulting right now rather than signing to the agreement under consideration?

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Answer:
Agree
Confidence level:
Not confident
Comment:
Default is obviously a big step with negative consequences. However, the current Troika policies will push Greece into default anyway, so it could very well be better to get it over with.

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Question 1:  

Do you agree that, on balance, the implementation of the agreement as outlined in media reports will have a non-trivial negative effect on Greek GDP?

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Answer:
Strongly Agree
Confidence level:
Very confident
Comment:
It simply does not make sense for a country to pursue such a exceptionally strong counter-cyclical fiscal policy even if that country is in need of structural reform.

Monetary policy and the zero lower bound (ZLB)

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Question 2: Do you agree that the benefits of reforming the monetary system to allow materially negative policy interest rates outweigh the possible costs?

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Answer:
Disagree
Confidence level:
Confident
Comment:
I would think that in most deep recessions in which one might consider negative policy rates, consumers and firms would care more about job security (consumers) and demand for their products (firms) than the cost of financing durable purchases and investment. This may be different if policy rates are substantially negative (say 5%), but such extreme values are likely to have other undesirable side affects.

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Question 1: Do you agree that it is feasible for the UK authorities to change the monetary system so that materially negative policy interest rates could be safely implemented? (In answering, you may wish to explain your reasons and define your view of 'material')

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Answer:
Disagree
Confidence level:
Confident
Comment:
It might be possible to implement such a system, but I doubt very much it can be implemented safely. Fiat money is build on trust. I would think that this trust would be severely negatively affected if negative policy interest rates could imply negative nominal interest rates on deposits. If the adopted monetary system would be such that nominal interest rates on money balances always remain non-negative then the stability of the financial sector would be at risk. Note that the MPC of the BoE has chosen not to lower Bank rate below 50 basis points, exactly because they thought that doing so would make banks' profit margins too low.

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