Panicos Demetriades's picture
Affiliation: 
University of Leicester
Credentials: 
Professor of financial economics
Former Governor, Central Bank of Cyprus and ECB Governing Council member

Voting history

Asset Prices and Monetary Policy

Proposition 2: Asset prices and financial imbalances are best addressed using macroprudential tools and left out of the monetary policy decision making process.

 

Answer:
Strongly agree
Confidence level:
Extremely confident
Comment:
Yes. Please see my previous answer. Muddling the waters of monetary policy with macroprudential objectives is a recipe for destroying whatever is left of central bank independence. For further details, please see my latest book: Central bank independence and the future of the Euro, Agenda Publishing, 2019.

Proposition 1: The Bank of England’s mandate should be officially modified to take housing or other asset prices into account in its monetary policy decisions.

Answer:
Strongly disagree
Confidence level:
Extremely confident
Comment:
Asset prices should be dealt with macroprudential regulation and tools. Macroprudential policy is now well defined and central banks can use it to address asset price growth that threatens to create financial instability. Within Basel III, there are various macroprudential tools that can help contain asset price growth, such as countercyclical capital requirements and leverage ratio. If macroprudential policy is failing to use them, for whatever reason, it is not the job of monetary policy makers to assist. Monetary policy should only respond to asset price growth to the extent that it affects core inflation. There is one dimension of asset price growth that economists often ignore - the political economy dimension. Asset price growth makes the wealthy wealthier. Often ruling elites create obstacles to appropriate macroprudential policies. However, getting help from monetary policy makers to address asset price growth is wrong: it would make monetary policy more political than necessary. Central bank independence, which is at the heart of the success of inflation targeting, could be at risk if monetary policy becomes more political. In other words, two wrongs do not make a right. Macroprudential policy needs to be strengthened and protected from political interests. Monetary policy should remain apolitical.

The “Spend Now, Tax Later” Budget

Question 3: Which of the following best characterizes the pace at which the budget addresses UK’s medium term fiscal challenges (deficit and debt)?

Answer:
Other, or no opinion
Confidence level:
Extremely confident
Comment:
It is a largely pointless exercise to make the Conservative Government appear fiscally prudent. It is questionable whether their measures, especially the rise in corporation tax, will have much of an impact on the deficit. With inflation low and incomes not rising the same can also be said about the personal taxation measures. In any case, the emphasis now should be on the recovery and only if and when that recovery is fully and robustly in place, the Chancellor should start to be concerned about the deficit. With the right support measures, in fact, the ensuing growth and job creation could well be budget neutral. In a deep recession, fiscal multipliers are well above unity. Now is an opportunity for smart public investments that should not be missed.

Question 2: To what extent will the “super deduction” aide the UK’s recovery from the Covid recession?

Answer:
Moderately
Confidence level:
Very confident
Comment:
It will certainly bring investment forward, as other economists have said. That will no doubt expedite the recovery, but unless it creates many new jobs, it will not make a substantial difference.

Question 1: How will the increase in the corporate tax rate from 19% to 25% affect the UK’s international competitiveness in the medium term?

 

Answer:
Other, or no opinion
Confidence level:
Confident
Comment:
A 6% increase in corporation tax is significant, however the tax rate is only one of many factors that determine international competitiveness. The business environment, human capital, access to new technologies and markets, and the overall tax regime as much more relevant. At worst, the increase in the corporate tax rate could reduce inward FDI if and when it is fully implemented. Given political and economic uncertainties, it will have no immediate impact.

Pages