Ethan Ilzetzki's picture
Affiliation: 
London School of Economics

Voting history

The “Spend Now, Tax Later” Budget

Question 1: How will the increase in the corporate tax rate from 19% to 25% affect the UK’s international competitiveness in the medium term?

 

Answer:
Moderate damage
Confidence level:
Not confident

The ECB’s Green Agenda

Question 2: Would you support changing the ECB’s mandate to incorporate the EU’s target of carbon neutrality by 2050, if such a change is deemed legally necessary to adopt your preferred approach?

Answer:
No
Confidence level:
Very confident
Comment:
See my response to Q1

 Question 1: Which of the following actions is the most advisable approach for European Central Bank to address the environmental impact of its bond-purchasing policies?

Answer:
Other or no opinon
Confidence level:
Confident
Comment:
Climate change is arguably the greatest challenge facing humanity, but it is best addressed using fiscal rather than monetary policy. Central banks are best suited to address price stability and stabilization policy. They are not institutionally suited to address problems in the realm of taxation and public finance, where climate change should be addressed. The ECB's bond-purchasing programs are distortionary and biased on many dimensions, not only environmental. If these distortions are deemed large (as I think they are), we should reconsider QE, rather than turn it into a permanent policy fixture aimed at (ineffectively) addressing one of the biggest policy challenges on the agenda. QE may well have been desirable during the Eurozone crisis and Covid-19, but we should aim to make it temporary and rare, in which its long run consequences (on the environment and everything else) will be limitted.

Should We Worry About Post-Covid Inflation?

Question 2: Which of the following will be the greatest inflationary (or deflationary) force facing the UK economy?

Answer:
Global factors
Confidence level:
Not confident
Comment:
All these factors are important. I emphasize global factors for a simple reason. It is unlikely that that low inflation rates in almost every country in the world is due to 190 central banks having simultaneously figured out how to cap inflation. The more likely explanation is that common trends in all these countries have led to deflationary pressures worldwide. This is reinforced by the fact that the global real risk-free rate has declined over time. We need to consider these global factors carefully and whether they might be at an inflection point.

 Question 1: Which of the following scenarios is most likely to hold on average for most of the upcoming decade?

Answer:
The BoE will allow inflation to exceed its current target
Confidence level:
Not confident
Comment:
First, the market is predicting this outcome based on the yields of inflation-protected gilts. Second, the combination of high public debt and low nominal interest rates might lead the UK government to raise the BoE's inflation target. This may in fact be a desirable policy if inflation doesn't materialize. Third, I am a little concerned that the Bank, like other central banks, is fighting the last war. Despite the aforementioned market signals, there appears a relatively broad consensus that deflation is a bigger risk than inflation. I have no doubt that the BoE will do what it takes to combat the former.

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