Pietro Reichlin's picture
Affiliation: 
Università LUISS G. Carli
Credentials: 
Professor of Economics

Voting history

The Future of Central Bank Independence

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Question 2: Do you agree that the traditional argument that less central bank independence leads to higher inflation will (still) be relevant over the next 48 months in Western economies?

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
The idea that reduced central banks independence leads to higher inflation is based on the assumption that fiscal authorities are tempted to use monetary finance. If this is going to be an issue for advanced economies in the next 48 months depend on many variables: how well high debt countries will be able to pursue fiscal consolidation and how they would respond to a (possible) spike in interest rates. Difficult to judge.

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Question 1: Do you agree that central bank independence in the Eurozone and the UK will decline over the next 48 months?

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Answer:
Agree
Confidence level:
Confident
Comment:
Since 2008, the ECB objectives have expanded from inflation targeting to financial stability, prevention of speculative attacks on sovereign debt, liquidity provision to national banks in peripheral countries and quantitative easing. I see two problems with this super-activity. One is that the ECB's budget may be destabilized, creating a potential conflict with the objective of price stability. The other is that these policies have large distributional effects (creditors vs. borrowers) and they may create moral hazard. Both of these problems may put into question the benefit of the ECB independence and provide a powerful argument to those who think central banks should be subject to political supervision and control.

German Council of Economic Experts' view of ECB policy

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Question 2: Do you agree that the ECB's monetary policy masks structural problems of member states?

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Answer:
Neither agree nor disagree
Confidence level:
Very confident
Comment:
To some extent, I agree that we cannot ignore the moral hazard induced by ECB actions in a Monetary Union, where member countries retain their sovereignty over spending and public debt. However, there are two caveats. The first is that, in my view, fiscal discipline and efforts in implementing structural reforms have gone sufficiently far after the hard lesson learned in the 2011 financial crisis. The second is that the ECB promise to raise inflation up to the 2 per cent target has not being delivered, and this imposes further limits to the solutions of the structural problems faced by peripheral economies.

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Question 1: Do you agree that exceptionally loose monetary policy by the European Central Bank is no longer appropriate?

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Answer:
Strongly disagree
Confidence level:
Very confident
Comment:
The recovery in most of the Euro Area economies is still lagging and this appears to be related to the ongoing debt overhang of private and public institutions. Furthermore, the current inflation rate is far from the two percent target. More generally, low interest rates appear to be the right policy choice to help peripheral countries with limited fiscal space in their struggle to stabilize public debt.

German current account surpluses

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Question 2: Do you agree that the German government should increase public spending given its persistently large current account surplus and given that it is part of the Eurozone?

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Answer:
Agree
Confidence level:
Confident
Comment:
I agree that, given Germany's high national saving and the low interest rates in the Eurozone, a bust to Germany's public spending would benefit to some extent the rest of the member countries and alleviate some of the risks. However, it is not clear if this is in the interest of Germany, given the extremely low unemployment rate and the fact that the country economic activity is basically operating at full potential.

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