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

Voting history

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

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Question 1: Do you agree that the simultaneous release of the policy decision, the enhanced minutes (including the voting record) of the MPC meeting and (in the relevant months) the release of the Inflation Report will facilitate inference on the likely stance of monetary policy?
 
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Answer:
Agree
Confidence level:
Confident
Comment:
The timely release of information relating to central bank actions should improve the ability of the market to infer the stance of monetary policy, provided that markets are able to process that information efficiently. The most prominent challenge to efficiency is the ‘beauty contest’ idea, first formulated by Keynes and updated by Morris and Shin. There, the concern is that market participants discount their private information and instead become ‘fixated’ on the information provided by the central bank. Whilst this is an elegant and rational theoretical construct, I have reservations about whether this is really a regular issue for the Bank of England. Several academic papers have shown the fragility of the result in slightly different settings, e.g. in 2004 Hellwig argued in a working paper that releasing public information is unambiguously good because the benefits of reduced price dispersion dominate any costs of markets potentially becoming fixated.

Greece’s elections and the future of the Eurozone

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Question 2: Do you agree that refusal of the core EU countries to a renegotiation of the Greek bailout agreements would carry serious risks for the economic well-being of the Eurozone?

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Answer:
Agree
Confidence level:
Not confident
Comment:
The risk that Greece could become “Europe’s Lehman” has diminished as the majority of Greek debt is now held in the public sector. This has removed some of the risks associated with a Grexit. However, a hard line stance by core EU countries on renegotiation of the Greek bailout agreements could well be counterproductive. Syriza has toned down its rhetoric in recent statements, a movement that it would be wise to encourage by reciprocal responses from the core EU countries. Ultimately, it would be good to work towards mechanisms whereby countries could leave the Eurozone if economic fundamentals dictate that leaving would be in everyone’s interest.

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Question 1: Do you agree that a Syriza victory on 25 January would lead to a significant or sustained escalation in spreads for other peripheral Eurozone countries?

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Answer:
Disagree
Confidence level:
Confident
Comment:
Recent opinion polls have consistently predicted that Syriza will have the largest share of the votes on 25 January, so a Syriza victory should already have been priced in by the market. The more interesting question is whether events subsequent to a Syriza victory may cause an escalation of spreads in other peripheral Eurozone countries. A key question is whether Syriza can form a government alone or in coalition with other parties, or whether there will need to be a second round of elections. If new elections are needed then uncertainty will rise, particularly in light of the four-year bailout plan finishing already at the end of February 2015. Recall that the Greek government’s attempts to raise funding in December 2014 were problematic.

2014 Autumn Statement

 

Question 2: Do you agree that the underperformance of tax receipts in recent years, provides a strong case for higher taxes?

Answer:
Disagree
Confidence level:
Confident
Comment:
Tax receipts are underperforming because the economy is weak. What we already know about fiscal multipliers suggests that raising taxes when the economy is weak is not a very good idea - the claim that fiscal contractions can be expansionary has largely been discredited amongst economists. However, the ageing of the UK population and a taste for socially redistibutive policy (as witnessed by the Piketty-inspired debate over inequality) suggests that both government spending and taxes will drift up in the future. I therefore foresee a time when taxes will have to rise, but that time is probably some way off when we know for certain that the UK economy is performing better and well on the left hand side of the Laffer curve.

Question 1: Do you agree that the scale of this planned reduction in total managed expenditure is credible?

Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
The planned reductions would bring total managed expenditure down to levels not seen in the UK since before World War II. Since then, governments in the UK and worldwide have responded to societal pressures to increase spending on transfer payments, health services and pensions as economies have developed. Reversing this trend as planned would require unprecedented cuts in government provision, which are likely to be politically difficult and may in some cases be technically infeasible. For example, increases in life expectancy are themselves likely to lead to increased health and pensions expenditure in the future, so the real size of the planned cuts in government provision is likely to be perceived as especially large. Some cuts may even be infeasible, for instance reducing pensions would involve reneging on the "triple lock" guaranteeing state pensions.

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