Question 3: Which would be the maximal public debt you would be willing to tolerate if used effectively (as in your answers to 1 and 2 above) to support an economic recovery?
Answer:
>140% of GDP
Confidence level:
Very confident
Comment:
Everything is contingent on the disease, but protection of citizens is the first job of the state. Failure to do so would lead to anarchy and so I do not think an upper bound can be guessed without a clear statement of the upper bound on the disease which we are yet to know (e.g., some epidemiologists expect secondary waves of infection).
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.
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?
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.
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.
The CFM surveys informs the public about the views held by prominent economists based in Europe on important macroeconomic and public policy questions. Some surveys focus specifically on the UK economy (as the CFM is a UK research centre), but surveys can in principle focus on any macroeconomic question for any region. The surveys shed light on the extent to which there is agreement or disagreement among these experts. An important motivation for the survey is to give a more comprehensive overview of the beliefs held by economists and in particular to include the views of those economists whose opinions are not frequently heard in public debates.
Questions mainly focus on macroeconomic and public policy topics. Although there are some questions that focus specifically on the UK economy, the setup of the survey is much broader and considers questions related to other countries/regions and also considers questions not tied to a specific economy.
The surveys are done in collaboration with the Centre for Economic Policy Research (CEPR).
Covid-19: Economic Policy Response
Question 3: Which would be the maximal public debt you would be willing to tolerate if used effectively (as in your answers to 1 and 2 above) to support an economic recovery?
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?
Question 1: Which of the following would have the greatest impact in mitigating the economic effects of the coronavirus economic crisis?
Labour Markets and Monetary Policy
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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?
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Question 1: Do you agree that a strong labour market is a good indicator of building inflationary pressure?
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