Jumana Saleheen's picture
Affiliation: 
Vanguard Asset Management
Credentials: 
Chief Economist

Voting history

Euro weakness in 2022

Question 2: Should the ECB respond to movements in the euro-dollar exchange rate of the nature observed in 2022?

Answer:
No
Confidence level:
Extremely confident
Comment:
No because of the impossible trilemma. The impossible trilemma refers to the idea that an economy cannot pursue independent monetary policy, maintain a fixed exchange rate, and allow the free flow of capital across its borders at the same time. The ECB should not respond as it supports a floating exchange rate currency regime. If it were to intervene the ECB would have to give up its pursuit of independent monetary policy. Or it would have to intervene in capital markets, thereby stopping the free flow of capital across its borders. None of these options are desirable.

Question 1: What was the main cause for the euro’s decline relative to the US dollar in 2022?

Answer:
Real factors
Confidence level:
Confident
Comment:
The main reason for the fall in the euro was expectations that the US would grow much faster than the euro area, given the war in Ukraine. Euro area: large negative terms of trade shock from the war in Ukraine. It intensified in September, when Russian gas flows through the Nord Stream 1 pipeline ended. Fears grew that lack of gas would bring European industry to its knees and the block would suffer recession. USA: as a net exporter of oil and gas, the US experienced a positive terms of trade shock – that not many people talk about. But it is important. It has made the US richer. The US also experienced a strong post-Covid recovery supported by strong household balance sheets built up from pandemic stimulus payments, and a historically tight labour market.  High and rising inflation in both regions led interest rates to rise in both regions through 2022. But the Fed started earlier and hiked aggressively. Monetary policy differentials did also contribute to dollar attractiveness.

Addressing UK public finances after the mini-budget crisis

Question 2: Relative to the Autumn statement, would the UK be better off reducing public debt

Answer:
Neither faster nor slower
Confidence level:
Confident
Comment:
I thought they got the balance right. History shows that economic growth is the key to sustainable public finances.

Question 3: Given the desired amount of deficit reduction, the Autumn Statement on balance:

Answer:
Got the tax-spending mix about right
Confidence level:
Confident
Comment:
The current government had a tough job.They had to walk the tightrope between (a) convincing markets they were fiscally prudent and (b) not hurt growth excessively through austerity at s time of rapid monetary policy tightening. They managed to get away by loosening fiscal policy very slightly in the next two years. After that point it becomes contractionary. I was impressed. I thought they did a good job at providing short-term stimulus to the economy and convincing markets of their medium-term fiscal orthodoxy.

Question 1: How necessary was it for the UK government to lower its deficit through tax increases or spending cuts in November 2022?

Answer:
Absolutely necessary
Confidence level:
Very confident
Comment:
It was important for the new government to announce fiscal plans that were prudent and sustainable. That means ensuring the debt-to-GDP ratio was falling in the medium term. The starting point for this government was the mini budget (including the U- turns). That put debt-to-GDP on a rising trajectory out to 2027/28; markets did not like this. To course correct, it was necessary to raise taxes and announce spending. After all of that and the debt-to-GDP path does fall slightly by 2027/28.

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