Costas Milas's picture
Affiliation: 
University of Liverpool
Credentials: 
Professor of Economics

Voting history

Brexit: the potential of a financial catastrophe and long-term consequences for the UK financial sector

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Question 2: What is the probability that the UK experiences such a significant disruption to financial markets and asset prices following a vote for Brexit on 23 June?

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Answer:
31-70%
Confidence level:
Confident
Comment:
The day after a Brexit vote, David Cameron will have to step down at once. Indeed, Eurosceptic Tories would not ‘digest’ the paradox of Mr Cameron negotiating, in a credible manner, BREXIT when he has ‘passionately’ argued in favour of Remain. Whether transition to a new leadership proves smooth or turbulent remains to be seen. Bearing though in mind that Tory Eurosceptics have made substantial noise during the Brexit campaign, it is more likely than not that we will witness political instability. On the economics/financial front, credit rating agencies will respond by cutting our credit rating score. This will hardly be surprising as academic studies have shown that EU membership enjoys a ‘premium’ of as many as two notches. With voters ‘kissing goodbye’ to EU membership, this 'premium' will not hold any more. All of the above will (a) put upward pressure on our borrowing costs (and of course mortgage rates) even if the BoE decides (in a rather desperate move) to cut the policy rate down to zero and (b) trigger financial volatility which, together with rising political instability at the Tories headquarters, will take time to sort out…It is sad really: David Cameron warned voters against a Do-It-Yourself recessionary damage when, in fact, it will be a David It's You damage...

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Question 1: Do you agree that there would be substantial negative long-term consequences for the UK financial sector if the UK were to leave the EU?

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Answer:
Agree
Confidence level:
Confident
Comment:
Have you got permission from the "Leavers" before asking these types of questions? They will say that CFM is EU funded.

The future role of (un)conventional unconventional monetary policy

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Question 2:  Do you agree that central banks should operationalise the use of these alternative tools of unconventional monetary policy for use either in the near term, or in the future, as economic conditions warrant?

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Answer:
Disagree
Confidence level:
Confident

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Question 1: Do you agree that central banks should continue to use the unconventional tools of monetary policy deployed in response to the global financial crisis as part of monetary policy under normal economic conditions?

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Answer:
Disagree
Confidence level:
Confident

National Living Wage and the UK economy

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Question 2: Do you agree that the new NLW will have a muted effect on wages and prices?

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Answer:
Agree
Confidence level:
Confident
Comment:
In the current environment of "low" unemployment, the rest of the workers (who form the majority as they are not on the minimum wage) will respond to the NLW developments by bargaining more lively in order to restore part of their “wage differentials”. Therefore, the NLW will put upward pressure on wages and prices. Notice, however, that the BoE’s Inflation Report expects CPI inflation to hit the target only in 2018q1! With this in mind, gradual and very mild interest rate hikes will occur in the medium-term. It has been suggested that low interest rates have contributed to over-investment in other risky assets (e.g. stocks and housing) therefore adding to bubble pressures which, of course, are setting the scene for yet another financial crisis. If the increase in the minimum wage is able to put an upward pressure on UK inflation sooner than later, the MPC will be forced to respond by hiking earlier and perhaps more aggressively. Such an increase in the interest rate (in response to stronger price pressures stemming from the very increase in the minimum wage) will be more than welcome as it will also counteract UK bubble risks!

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