Michael Wickens's picture
Affiliation: 
Cardiff Business School & University of York
Credentials: 
Professor of economics

Voting history

Prospects for Euro Area Inflation in 2023

Question 2: Relative to market forecasts of the ECB’s MRO rate peaking at 3.5%, which of the following is more likely during 2023?

Answer:
The MRO rate will peak above 3.5%.
Confidence level:
Confident
Comment:
The further increases reflect the slow fall in inflation and that the ECB is still behind the curve in responding to the earlier sharp rise in inflation.

Question 1: How likely is it that peak headline euro area inflation is behind us?

Answer:
Likely
Confidence level:
Confident
Comment:
The issue for EU monetary policy is not whether inflation has peaked but whether inflation is coming down fast enough for interest rates to stop being increased. Given that the ECB was well behind the curve on raising rates as inflation took off, a further rise might still be required.

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:
Confident
Comment:
Monetary policy should target inflation, not the exchange rate. This implies higher interest rates and a stronger euro.

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

Answer:
Monetary policy differences
Confidence level:
Confident
Comment:
The key factor is the effect of UIP on nominal exchange rates over a period of time. ECB was slower than the Fed to raise interest rates and has raised them less to combat energy shocks and their transmission to other prices. As a result, inflation is higher, and is expected to remain higher, for longer than that in the US. UIP tells us that this would cause the euro to depreciate relative to the US dollar.

Addressing UK public finances after the mini-budget crisis

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

Answer:
No opinion or other
Confidence level:
Confident
Comment:
As explained there was no need for either big spending or big tax cuts.

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