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

Voting history

Covid-19: Economic Policy Response

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.

Global risks from rising debt and asset prices

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

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Answer:
Agree
Confidence level:
Very confident
Comment:
Ultra low rates was adopted as a temporary response to the financial crisis shock but has become a long-lived regime in its own right that has played a significant role in driving up asset and house prices globally.

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Question 1: Does the world economy face heightened risks arising from an excess of public and private debt and/or inflated asset prices?

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Answer:
Strongly agree
Confidence level:
Confident
Comment:
In most advanced economies, public and private debt levels are at historic peacetime highs relative to income and therefore represent fundamental risk because adjustment to less elevated levels simply may not be orderly.

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