Jagjit Chadha's picture
Affiliation: 
National Institute of Economic and Social Research
Credentials: 
Professor of economics

Voting history

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?

Answer:
>140% of GDP
Confidence level:
Confident
Comment:
The UK relies heavily on overseas financing of the current account deficit so monetary-fiscal operations must be within a stable framework. But at such low global real interest rates there is a considerable room for offsetting this crisis and ensuring that it does not scar the economy for a generation. Wartime debt levels have risen to these levels and were managed with a long periods of post-war adjustment.

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:
Very confident
Comment:
Businesses will need help with cash flow and with working capital at this time. I would include the self-employed as part of the business group in this case. And we should be thinking of how to support them as well at this time.

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

Answer:
Government transfers to and bailouts of businesses
Confidence level:
Very confident
Comment:
Firms have been subject to a shock that is outside of their control or their direct responsibility. There is no moral hazard question to answer and the state has a responsibility to provide insurance in this case. The shock ought to be time limited so we can match the insurance to a particular duration. Keeping firms afloat will best guarantee a return to normality eventually.

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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Answer:
Disagree
Confidence level:
Confident
Comment:
The critical point here is that raising rates from the near zero does not imply tight monetary policy. Rates could be raised a number of times in small increments and still be providing a monetary stimulus. Whilst all measure of economy-wide slack are also uncertain, to the extent that low productivity trends have crimped supply, there is a danger that even small increases in unit labour costs may pose an inflation risk. The question is more whether we should continue to wait for a normalisation in rates. Some of the risks of expectations of significantly higher interest rates can be offset with central bank projections of Bank Rate.

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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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Answer:
Agree
Confidence level:
Confident
Comment:
I shall interpret strong here as tight, in the sense that we are then close to or approaching some notional level of full employment. The most significant part of most firms' costs are connected with labour inputs and a significant fraction of output is still related to what used to be called the non-tradable sector. These two factors will tend to imply that a tight labour market represents a risk to a given inflation outlook but at best the labour market alone, is a noisy indicator of overall inflationary pressures.

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