Patrick Minford's picture
Affiliation: 
Cardiff Business School
Credentials: 
Professor of economics

Voting history

Post-Covid Fiscal Rules for the UK

Question 3: Which of the following variables should fiscal rules target to best improve the performance of the UK macroeconomic policy going forward.

Answer:
No explicit target
Confidence level:
Confident
Comment:
The aim of fiscal policy should be to support growth in the current stagnationary environment, and subject to the long run solvency constraint. The targets sequentially selected have obscured this main role of fiscal policy and led to a contractionary bias in it. This was suspended by the Covid crisis, force majeure. But post-Covid there is a creeping return to a Treasury-pushed agenda of fiscal targets that will inhibit policies to support growth that do not endanger solvency. Instead the Treasury should publish a Solvency monitor, checking that the growth of debt is less than the real interest rate and hence that the present value of debt converges on zero in the long run.

Question 2: What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the conduct of fiscal policy in the UK?

Answer:
Harmed
Confidence level:
Confident
Comment:
As noted in my first answer, growth has been weakened since the financial crisis, and interest rates driven by QE to the zero bound, where monetary policy has little effect and savings get a poor return. The economy's chronic weakness needed to be met by a fiscal/monetary mix with stronger fiscal expansion and less monetary stimulus.

Question 1:  What impact has the sequence of fiscal rules adopted in the UK since 1997 had on the level of UK public debt? 

Answer:
Reduced
Confidence level:
Confident
Comment:
The main episode was the aftermath of the financial crisis of 2008 when the rules led to a programme of 'austerity'. This reduced debt but weakened growth, requiring aggressive monetary stimulus via Quantitative easing. This in turn drove interest rates to the zero bound.

ECB Monetary Policy and Catch-up Inflation

Question 2: Which of the following policies is the most desirable to meet the ECBs objective to achieve its mandate of “price stability” as you understand this term.

Answer:
NGDP targeting
Confidence level:
Confident
Comment:
My answer above deals with this. It is worth adding that the substantial power of NGDP targeting to stabilise comes from the long ahead commitment it implies for future interest rates under rational expectations.

Question 1: To what extent do you agree with the following statement? “The European Central Bank should systematically allow for inflation to exceed its target to compensate for periods of below target inflation.”

Answer:
Agree
Confidence level:
Confident
Comment:
I think that the best policy is nominal GDP targeting because this creates a powerful stabilising influence from monetary policy. I found this gave the highest welfare under conditions of fixed price stickiness, based on simulations on US data- see my 2016 paper at 10.1016/j.intfin.2016.04.011. Similarly, when backed by a fiscal backstop preventing the zero lower bound, I found the policy was optimal for the US under more general conditions of state-dependent pricing that best modelled full US post-war experience- see my 2019 paper athttps://authors.elsevier.com/a/1dn3wxUDJvki7. Average 'catch-up' inflation targeting, together with an output gap response in practice gets close to Nominal GDP targeting. So I think moving towards this will be beneficial.

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