John Hassler's picture
Affiliation: 
Institute for International Economic Studies (IIES), Stockholm University
Credentials: 
Professor of Economics

Voting history

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:
Extremely confident
Comment:
This question is a bit ambiguous. One the one hand, EU's target of carbon neutrality should be incorporated in ECB's plans and forecasts. The policies required to meet the target may affect energy prices, emission prices and thus inflation. However, there is no reason to believe that this much changes the economic environment the ECB works in, neither qualitatively nor quantitatively. To give the ECB the mandate to implement the target of climate neutrality would clearly be wrong. Monetary policy, neither conventional nor non-conventional, is effective as a tool for industrial policy aims in general and climate goals in particular. Instead, the key tool for climate policy is the EU ETS. Additional tools need to be used for dealing with, e.g., distributional consequences of climate policy and climate change. Also here, monetary policy is not the right tool and ECB not the right institution to deal with these issues.

 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:
No change in policy
Confidence level:
Extremely confident
Comment:
The mandate of independent central banks is stabilization policy with the purpose of reducing variations in economic activity around its potential level. There are strong reasons, both economic and political, not to include also industrial and structural policy into the CB's mandate. One might argue that a neutral stance with respect to temporary purchases and sales of different types of assets is reasonable. However, I think the proponents of green monetary policy are after a more permanent money financing of investments in green projects. This would not be stabilization policy, and extending the ECBs mandate to include such industrial policy is not advisable. The argument that the risk of fossil stranded assets could motivate CBs paying attention to too high investments in the fossil industry is in principle correct, but quantitatively not likely to be very strong. Certainly, the risk that an acceleration in climate policy leads to financial losses in the fossil industry is real. However, three things need to be noted. First, the fossil industry that is most vulnerable to emission prices is coal power but the stock market value of this industry is almost gone already, in both EU and the US. The conventional oil and gas industry has at least since the oil shocks in the 70s faced very volatile prices and it seems unlikely that the uncertainty of future emission prices would radically increase these risks. Second, financial stability is also threatened if a green bubble is building up. Third, the most effective way to reduce financial risk is to make sure risky assets are held by risk tolerant agents, e.g., pension funds rather than banks. Policies that might lead to a more concentrated ownership of fossil assets could therefore be a risk to financial stability. Overall, I conclude that the arguments for changing the monetary policy are very weak.

Post Covid-19 Potential Output in the Eurozone

Question 1: How much lower will the potential level of GDP in the Eurozone in 2025 be due to Covid-19 relative to pre-Covid forecasts?

 

Answer:
No different
Confidence level:
Confident
Comment:
The coronacrisis led to the largest and most globally synchronized fall in GDP ever recorded. In contrast to previous large economic downturns, we know the reason for this one. Social contacts need to be reduced to contain the pandemic. Most likely, the fundamental cause of the crisis will vanish this year. Due to very forceful policies, the initial shock did not lead to self-reinforcing feedbacks -- a quite possible scenario with a financial crisis leading to perhaps even a depression was avoided. Bankruptcies and unemployment have not been avoided completely. However, from the perspective of long-run consequences, it has had had a more favorable composition than many other crises. Young individuals and small scale service sectors are more hit than others, but also more flexible. The long-run consequences of the crisis are the likely to be fairly small.

Question 2: How much lower will the potential growth rate of GDP in the Eurozone in 2025 be due to Covid-19 relative to pre-Covid forecasts?

 

Answer:
No different
Confidence level:
Confident
Comment:
It is hard to see that the fundamental causes of growth, namely the creation of new ideas and the ability to adopt and exploit these for commersial and social use, are affected in the long-run by the coronacrisis.

Should the ECB Reformulate its Inflation Objective?

Question 3: Which of the following best reflects your opinion on the following statement? “The ECB should explicitly recognize unemployment and/or economic growth as a secondary aim, secondary to its price stability mandate.”

Answer:
Strongly agree
Confidence level:
Extremely confident

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