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

Voting history

Monetary policy and the zero lower bound (ZLB)

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Question 1: Do you agree that it is feasible for the UK authorities to change the monetary system so that materially negative policy interest rates could be safely implemented? (In answering, you may wish to explain your reasons and define your view of 'material')

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Answer:
Strongly Disagree
Confidence level:
Very confident
Comment:
The ideas discussed here to 'remedy' the zero bound imply that it is sufficiently important to justify substantial intervention in currency institutions. I have two strong objections to these ideas. First, the zero bound is a transitory situation which applies only to the risk-free rate of interest on government short term bonds. There is no zero bound on the vast majority of credit instruments used by the private sector; nor has there ever been an episode of it that I am aware of. Monetary policy is capable of affecting the credit rate of interest by open market operations that affect bank reserves. It can also affect the exchange rate. Since the crisis the mechanism via bank reserves and credit expansion has been greatly impeded by draconian new regulation of banks; this was a serious mistake, both because this regulation has been heavy-handed and distortionary and also because it has much impeded the recovery. This view of the economy's operation is backed up by recent Cardiff empirical work on the US ('Monetarism rides again?). A further monetary remedy is to strengthen the usual interest-rate setting rule in normal times. One way to do this is to substitute a nominal GDP or price level target for the inflation target. In the paper above we show this would be highly effective in reducing the number of zero bound episodes and stabilising the economy in spite of their occasional occurrence. Second, the suggestions being made involve some costly interventions in monetary institutions- such as stamping currency. Then paying negative interest rates on bank reserves meets its own zero bound at the cost with which banks can store their cash physically; it just pushes the bound lower. These suggestions have their parallel in the advocacy of 'macro-prudential' policy which too is highly distortionary and also made unnecessary by our ability to use monetary policy remedies. In sum this route involves costs for which since there are direct monetary policy remedies available there is no justification.

The Importance of Elections for UK Economic Activity

Question 2: Do you agree that the outcome of the general election will have non-trivial consequences for aggregate economic activity (employment and GDP)?

Answer:
Agree
Confidence level:
Confident
Comment:
Several coalition combinations could make difficulties for the economy- notably a Labour/SNP/Plaid/Green coalition which could refuse to continue the correction. This is the risk I mentioned in the first answer. Even if this coalition obtained power however I would expect some reasonable extent of correction, even if carried out mainly by general tax increases. The best outcome for the economy would be some sort of continuation of the current coalition, perhaps supported by UKIP and the DUP. The basic point is that public opinion in the UK would punish any government that put the economy at risk and therefore there will be strong pressure on any governing coalition to avoid damage to the economy either by inadequate correction or by aggressive tax increases.

Question 1: Do you agree that the austerity policies of the coalition government have had a positive effect on aggregate economic activity (employment and GDP) in the UK?

Answer:
Agree
Confidence level:
Confident
Comment:
The coalition government has managed to set a definite direction towards deficit reduction without moving so rapidly as to destabilise the economy. Essentially it has halved the deficit/GDP ratio in this Parliament. In spite of this correction and the reduction in public sector jobs employment has grown strongly and recovery has been established. The correction needs to go further- about the same again- to bring fiscal affairs back under proper control. Interest rates have been negative in real terms and are likely to continue to remain low. This has made it easier to delay the correction. The only risk in the delay of the correction compared with the original plans to have eliminated the deficit by now, is that an incoming government might refuse to complete the process. However, this risk is quite small.

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

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Question 2: Do you agree that the Bank's proposal to release the policy decision, MPC minutes and (once a quarter) the Inflation Report all at the same time justifies a change in the structure of MPC meetings from two consecutive days to a process in which in the MPC meetings are spread out over seven days?
 
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Answer:
Disagree
Confidence level:
Confident
Comment:
I am afraid that these proposals fall into the category of 'more means worse'. The meetings are longer, more arduous for outside members who need to take a lot more time off, and more exhausting for staff because they need also to prepare all sorts of surraounding documents simultaneously. Furthermore, beside this fact that reducing the frequency adds to the burden, it moves against the natural frequency of news arrival which is monthly; and it reduces the value of the regular 'conversation' the MPC members have which again is monthly in the natural course of events. The fact that the Fed meets eight times is neither here nor there. The Fed is a huge federal agency; the UK is a unitarian state. In between Fed meetings the Chairman can take certain executive action (eg to push fed funds intervention to the bottom or top of the range) and is in practice a dominant figure. The MPC is an executive committee of equals and the Governor does not necessarily speak for them, nor is he empowered to take executive action on monetary policy- on the other policy committees I suppose the theory is similar but we have no experience to judge yet how they will work in practice.
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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:
Disagree
Confidence level:
Confident
Comment:
This question needs to be considered against the background of the policies the Bank has adopted since 2007 when the crisis first erupted. During this period we have had various degrees of transparency about both monetary policy and financial stability policy. But the main facts have been that for all this information there have been serious policy mistakes (the worst being the Bank's failure to cooperate fully with the Fed and US policymakers over the Lehman affair which precipitated the worst part of the crisis) and quite a lot of confusion about what the overriding aims of monetary and financial stability policy were. For example were they to get banks back on their feet lending strongly to advance the recoevcry or were they to blanket them in regulative chains to prevent any 'risky lending' (their job, one would have thought). Was QE intended to jolt lending and money supply growth back into action, and if so what was its relation to bank regulation? On all these important matters there was complete confusion where there was not utter silence. yet we kept on getting 'minutes' and 'reports' which told us nothing much at all. So my reason for disagreement is that I think these measures will have no effect on the central questions of the Bank's policy aims. There is a further implication: 'transparency' is essentially a natural concomitant of agreed and clear policy. When there is no such agreement or clarity, then transparency is no substitute; it can contribute nothing. Indeed if badly handled it simply reveals confusion which worsens things. A competent organisation will sidestpe any transparency in these circuumstances by various well-known bureacratic means- which is of course just as well.

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