Angus Armstrong's picture
Affiliation: 
National Institute of Economic and Social Research
Credentials: 
Director of Macroeconomic Research
Visiting Professor, Imperial College London

Voting history

Covid-19: Economic Policy Response

Question 2: Which of the following would have the second greatest impact in mitigating the economic effects of the coronavirus economic crisis in the UK?

Answer:
Government credit support for businesses
Confidence level:
Confident
Comment:
Businesses face a sudden-stop in demand and so some support is necessary. While credit support is fastest and simplest, the design is crucial. For medium and large size companies they can repay or if there is a problem after say 6 months the credit is converted into equity. This will avoid a credit overhang and making the shadow of the crisis longer than necessary. The equity could be held by the British Business Bank, overnight transforming it into a decent size institution with a different mandate creating more diversity in the financial ecosystem. It may even herald the start of state equity stakes and reduce the dependence of debt finance.

Question 1: Which of the following would have the greatest impact in mitigating the economic effects of the coronavirus economic crisis?

Answer:
None of the above, other, or no opinion
Confidence level:
Very confident
Comment:
Govt's plan to underwrite 80% of wages is exactly the right move both economically and morally, which should not be ignored. It greatly lessons incentives on firms to fire staff when demand has come to a sudden stop and for households to engage in precuationary saving or try to return to work earlier than safe to do so. The private sector will not be spending so no problem with govt deficit. The tricky bits will be (a) delivering the payments, (b) not discouraging job moves, and (c) when to unwind scheme. But the right move.

Labour Markets and Monetary Policy

======================================================================

Question 2: Do you agree that, in a period of great uncertainty and after a prolonged period of weak real wage growth, monetary policy makers can afford to wait for greater certainty about real wage developments and building inflationary pressure before raising interest rates?

======================================================================

Answer:
Disagree
Confidence level:
Confident
Comment:
The issue is less about raising interest rates at all, more about whether the adjustment should be gradual. On this point I would support the gradual adjustment. But there are other signs of reaching full capacity than just past real wage growth. For example, increasing leverage is related to risk and the cost of capital. In my view policy makers should take a broader interpretation of their mandate and include other signs of being somewhere near to full capacity.

======================================================================

Question 1: Do you agree that a strong labour market is a good indicator of building inflationary pressure?

======================================================================

Answer:
Agree
Confidence level:
Confident
Comment:
I believe that a strong labour market is an indicator of inflationary pressures. However, the relationship is much looser than 'output gap' analysis would suggest. Global integration has had an influence on domestic wages, particularly at the lower end of the spectrum through some extent of factor price equalization. This has weakened the trade-off between wage and inflation. Ignoring international aspects has led to misreading the extent of excess or shortage of demand.

Global risks from rising debt and asset prices

======================================================================

Question 2: Is the loose monetary policy of major central banks responsible for the recent increase in global leverage or asset values?

======================================================================

Answer:
Agree
Confidence level:
Very confident
Comment:
Central banks themselves have argued that QE in part functions through rising asset prices so this hardly seems controversial. However, there is a deeper issue that conventional monetary policy also affects risk prremia. There has been some initial attempts to model spreads in central bank policy reaction functions which is welcome, but it is far from clear that risk taking can be summarised by a single metric. This creates a spil-over between monetary and financial policy which probably requires some further thought.

Pages