Martin Ellison's picture
Affiliation: 
University of Oxford
Credentials: 
Professor of economics

Voting history

Monetary policy and the zero lower bound (ZLB)

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Question 2: Do you agree that the benefits of reforming the monetary system to allow materially negative policy interest rates outweigh the possible costs?

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Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
There are likely to be significant costs to changing the system to allow for negative policy rates, even such a change was feasible. First up, whilst the share of cash in transactions has already fallen to about half, there is considerable heterogeneity in the use of cash across different parts of the population. Part of this in generational, with my daughter almost never using cash for any payments whilst I still use cash for small to medium sized transactions. The subset of the population accustomed to using cash regularly would suffer disproportionate costs from the withdrawal of currency. Secondly, any transition to a new regime would need to be managed carefully so as not to endanger the reputation of the monetary authority. The Bank of England is already running unconventional policies on an unprecedented scale, so adding another untried and untested policy measure is questionable at this time. It would be better to fully explore the consequences and limits of Quantitative Easing before engaging in reform of the monetary system.

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Question 1: Do you agree that it is feasible for the UK authorities to change the monetary system so that materially negative policy interest rates could be safely implemented? (In answering, you may wish to explain your reasons and define your view of 'material')

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Answer:
Strongly Disagree
Confidence level:
Confident
Comment:
Changing the monetary system to allow for negative policy rates would take UK monetary policy into unchartered waters, fraught with potential risks. One of the main risks is a loss of control of the monetary base, either because currency has to be abolished (which needs to be done at least with respect to high denomination notes as they otherwise dominate as a store of value) or because of the rise of digital currencies as stores of value and media of exchange, such as Bitcoin. On the latter, the central bank could potentially introduce its own digital currency, but even then fiat would have to be put in place to prevent the rise of competing digital currencies dominating offering non-negative rates. It is likely that mildly negative rates can be sustained due to the inconvenience of holding cash or digital currencies to store value, but anything below about -1% would be problematic.

The Importance of Elections for UK Economic Activity

Question 2: Do you agree that the outcome of the general election will have non-trivial consequences for aggregate economic activity (employment and GDP)?

Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
There is heightened uncertainty in the run up to the general election, which may continue for some time in the aftermath if the result is not clear or there are difficulties forming a new government. This will filter through to inflation and GDP to some extent, but of more importance is how much the new government is committed to fiscal austerity. The differences between party platforms are not huge in this respect, so the impact of the election on aggregate macroeconomic variables is likely to be muted.

Question 1: Do you agree that the austerity policies of the coalition government have had a positive effect on aggregate economic activity (employment and GDP) in the UK?

Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
The idea that fiscal contractions can be expansionary has largely been discredited. The work by Alesina, Favero and Giavazzi shows that it matters whether austerity comes about through rises in taxes or cuts in expenditure, but the evidence is that spending-based consolidations are at best neutral and that taxation-based consolidations are contractionary. There is scant support for spending-based austerity having a positive effect on output, and clear indications that tax-based austerity does not.

Transparency and the Effectiveness of Monetary Policy following the Warsh Review at the Bank of England

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Question 2: Do you agree that the Bank's proposal to release the policy decision, MPC minutes and (once a quarter) the Inflation Report all at the same time justifies a change in the structure of MPC meetings from two consecutive days to a process in which in the MPC meetings are spread out over seven days?
 
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Answer:
Agree
Confidence level:
Confident
Comment:
The practicalities of collating and processing minutes is likely to be a constraint that speaks for the revised timetable. It is imperative that information released by the central bank is of good quality, otherwise monetary policy would be injecting extra ‘noise’ into the economy. There is an obvious trade-off between the timeliness and quality of information, which the Bank of England’s proposal seems to address reasonably.

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