Morten Ravn's picture
Affiliation: 
University College London
Credentials: 
Professor of economics
Head of Department

Voting history

Monetary Policy and Inequality

Question 2: What role should inequality play in the monetary policy decisions (interest rate policy and quantitative easing)?

Answer:
Substantive role
Confidence level:
Very confident
Comment:
Inequality concerns should be on the table. But as indicated in my previous answer, monetary policy has to work in tandem with other policy instruments and primary concern should probably still be to provide a nominal anchor for the economy. Yet, it should be one of the issues discussed when determining the stance of monetary policy.

Question 1: How large is the impact of monetary policy on the joint distribution of income and wealth?

Answer:
Large
Confidence level:
Very confident
Comment:
Inequality dispalys countercyclical movements. There are many channels through which monetary policy impact on inequality. One channel is through income effects of changes in returns on assets which depend on the net asset position of households. Another is through general equilibrium effects impacting more directly on lower income households. In my own work, we have looked at the impact on interest rate spreads between borrowing and savings rates which affects the extent to which households can self-insure against income shocks. This channel is quantitatively important. Monetary policy in itself may not be able to address the issue, will most likely have to work in tandem with fiscal policy (through transfers) and with financial sector regulation (through spreads).

Fiscal Rules in the European Monetary Union

Question 2: Which of the following is the one reform you would choose to improve fiscal rules?

Answer:
Expansion of EU level fiscal capacity for expanded mutual insurance
Confidence level:
Very confident
Comment:
I think risk sharing through a central budget would be the most effective. But at the same time, I can't see it happening for political reasons. As a second best, I would probably allow for some further flexibility, maybe have a European fiscal council but such councils take a long time creating credibility (the Swedish and the Danish institutions have both been around for quite a while and have much higher credibility than, for example, the British equivalent) so will not be a short run option. Moral hazard, of course, remains an issue but I am not sure it is the biggest issue at the moment.

Proposition 1: The existing fiscal rules for European Monetary Union members require revision.

Answer:
Agree
Confidence level:
Very confident
Comment:
Lots of water have passed under the bridge since the fiscal rules were formulated. We have now the ESM and we have also experienced two very large recessions and a sovereign debt crisis in Europe. It is time to revisit the SGP and the fiscal rule set: Does it serve its purpose? Do the rules allow countries to manage crisis periods? How effective are they in addressing moral hazard, how does the existence of the ESM affect this? The set of rules are also very complicated which is unhelpful. In sum, it's time go back and do some serious work on this. Good fiscal rules are helpful in anchoring expectations, bad fiscal rules can hinder stabilization.

Should We Worry About Post-Covid Inflation?

Question 2: Which of the following will be the greatest inflationary (or deflationary) force facing the UK economy?

Answer:
None of the above, other, or no opinion
Confidence level:
Confident
Comment:
As indicated in my prrevious answer, I think it is a mixture of factors including debt, monetary expansion and, indirectly, Brexit. It will ultimately be a question of politics which one of these become the dominating force.

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