Jumana Saleheen's picture
Affiliation: 
CRU Group
Credentials: 
Chief Economist

Voting history

Should the ECB Reformulate its Inflation Objective?

Question 1: Which of the following best reflects your opinion on the following statement? “The ECB should explicitly state that it will allow inflation to temporarily exceed the 2% target following extended periods of low inflation.”

Answer:
Disagree
Confidence level:
Very confident
Comment:
The only good argument for the ECB to follow the Fed, in announcing an average inflation targeting framework, is to harmonise policy frameworks on both sides of the Atlantic. Such harmonisation makes it easier for financial markets to make calls on the euro/$ - a benchmark currency for global trade. I am critical of the success of such an average inflation targeting framework for many reasons. (1) It is not tried and tested (2) It is less transparent - if like the Fed the ECB are not explicit about the period over which they seek the average inflation target to be met. (3) (2) means it would be harder to evaluate the success of the ECB in meeting its remit, and thereby it would weaken the accountability of the ECB Governing Body.

Question 2: Would you support increasing the ECB’s inflation target to a higher rate of inflation than the current 2% target?

Answer:
Support
Confidence level:
Extremely confident
Comment:
The ECB has persistently undershot its inflation target of "below but close to 2%": Euro Area inflation averaged ~1.4% since 2010, and 1.2% since 1999. There are many explanations for this performance and may solutions have been suggested - including raising the inflation target. There are pros and cons to raising the inflation target (e.g. see Gagnon and Collins, December 2019). The cons include costs of higher inflation (if we get there) and confusion if the EU has a different target to other major economies. The pros are that it grants the central bank more policy space, which it can then draw on to stabilise business cycle fluctuations in output. On balance I think the benefits outweigh the costs.

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
Comment:
The EU is a large open economy, with a flexible exchange rate. That means that in response to a negative demand shock, one might see a negative output gap with no weakness in inflation. This arises because of a fall in the exchange rate (in response to the demand shock), which in turn pushes up on import prices and headline inflation rates. It is for this reason that standard RBC models (e.g. Clarida, R, J Gali and M Gertler (1999)) include a traditional Taylor Rule - where optimal policy is determined by the neutral rate of interest and the deviation of inflation from target, and the deviation of output from potential (the output gap).

The Economic Cost of School Closures

Question 3: To what extent will school closures increase gender inequality due to unequal gender distribution of the burden of school closures?

Answer:
To a small degree and temporarily
Confidence level:
Confident
Comment:
There is no doubt that school closures have increased gender inequality. Anecdotal evidence from the recent period is that children are more likely to interrupt their mothers on a zoom call than they are to interrupt their fathers. It is unclear what is the source of this difference, and how much lies on the parent’s behaviours (e.g. maternal instinct) and how much is it due to the child’s behaviour (go to the person who is most likely to help). But I think the impact here will be more temporary than persistent, as and when we return to normal life.

Question 2: To what extent will school closures increase inequality in human capital development?

Answer:
To a small degree but persistently
Confidence level:
Confident
Comment:
School closures will impact some children more than others, and therefore increase inequality in education in the short-term and longer-term. Children taking national exams next year (GCSE and A ‘levels) are most vulnerable. Younger children will be less affected as have more time to ‘catch-up’. Children from private schools are less vulnerable, as fee-paying schools have provided a full day of online schooling, starting from assembly to lessons throughout the day. They have provided ample interaction with teachers and other students. That has not been the case in state schools. Here work has been set online but left to children to complete, making support from parents crucial. Anecdote suggests that that support has varied by parental education and income, with those at the upper end providing more support. Academic evidence finds strong feedback loops in educational attainment - good teaching improves educational outcomes, which in turn gives rise to more opportunities. School closures of 4 months are sufficient to have a persistent impact on educational inequality.

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