Question 2: Do you agree that central banks should operationalise the use of these alternative tools of unconventional monetary policy for use either in the near term, or in the future, as economic conditions warrant?
Additions to the monetary policy toolkit are being discussed because real interest rates are very low, and in a period of low inflation this may mean nominal rates become negative. The central bank can only significantly affect the real rate of interest in the short run, although the inflation target may also have a marginal impact on it in the long run. If we are worried about low real rates for a sustained period, then we should consider the balance of saving and investment, both globally and locally. If real rates are too low for comfort we can raise them by changing this balance, and the most effective way to do that would be to increase government spending relative to receipts. This policy is available in most advanced economies, as there are no real worries about debt default in the US, the UK, Germany, Canada or France. Conventional and current unconventional monetary policies will then become easier to operate. However, this is not Friedman’s ‘helicopter money’. That would involve exactly what it says, the random dispersal of cash to individuals to induce them to spend more. Its advantage is that there is political interference in the process of helicopter drops, unlike in the design of government spending programmes. A drop programme does not need prior design. There are however suggestions around that new policies, such as large scale equity purchases through blind asset funds (to avoid political interference in the equity markets) would be wise. The design would require careful legislation, and would almost certainly be subject to capture by enthusiasts for a new interventionist economic strategy. However, an equity based tool seems too complex for our needs given that simpler solutions can be found within the current set of tools.
Question 1:Do you agree that central banks should continue to use the unconventional tools of monetary policy deployed in response to the global financial crisis as part of monetary policy under normal economic conditions?
Monetary policy has normally operated at the short end of the yield curve, whilst the long end is probably more important for both wealth effects and investment decisions. There is a strong case for operating in the commercial paper market as well as the government market as effects may be more directly felt. Stimulating or constraining the economy by operating only at the short end is particularly effective in financial markets where many individuals and firms are liquidity constrained, and this may be less common now than it was in the 1950s. Changing financial constraints, wealth evaluations and investment decisions are all reasonable parts of a central banks' toolkit in normal times. The long end has become more important in the recent period of very low short rates. Central banks should look at the situation they find themselves in and operate where it is most appropriate. Of course such actions should be two sided, so that accumulations of assets should eventually be run down.
An increase in the minimum wage is almost certain to have a negative impact on employment in the UK, although the vast majority of jobs covered will not be affected. Estimates of those to be covered by 2020 vary between 1 million and 3 million, and up to 10% of the jobs covered might disappear. There is an ongoing dispute over the impact of minimum wages on employment, with most of the evidence using US data. It seems likely that there is a small negative effect there. The UK is a more open economy with fewer firms with market power than in the US, and both make the demand for labour more elastic, and hence the effect of minimum wages will be higher. This will be particularly true in sectors such as agriculture where there are many producers in the rest of the EU who compete with no barriers. In addition, some public sector employers are budget constrained, and any rise in wages in social care, for instance, will be fully reflected in reductions in employment.
Question 2: Do you agree that the possibility of Brexit significantly increases uncertainty and volatility in financial markets and the economy in general?
The possibility of exit will change daily until the vote takes place. This alone will raise volatility and uncertainty in the economy as a whole as well as in all financial markets. Exit itself will give rise to new policies, with potential major revisions to UK trade and investment regulation, as well as to financial market constraints. This possibility raises uncertainty now. Exit will almost certainly reduce sustainable output, as the gains from greater competition are unlikely to be available whatever new arrangements can be put in place. Potential competition and market contestability will be reduced if we exit. The uncertainty about the post exit environment and the impact of exit itself on the economy will be reducing investment and foreign direct investment now, whatever the outcome. Both investment and foreign direct investment will be reduced if exit takes place. Comparisons to the Danish situation in 1992 are designed to assuage fears, but the comparison is false. The Danes refused a Treaty, which would then have failed if it had not been amended. They remained a member of the Union. If the UK votes to leave the Union, negotiations to keep them in will be politically impossible.
The CFM surveys informs the public about the views held by prominent economists based in Europe on important macroeconomic and public policy questions. Some surveys focus specifically on the UK economy (as the CFM is a UK research centre), but surveys can in principle focus on any macroeconomic question for any region. The surveys shed light on the extent to which there is agreement or disagreement among these experts. An important motivation for the survey is to give a more comprehensive overview of the beliefs held by economists and in particular to include the views of those economists whose opinions are not frequently heard in public debates.
Questions mainly focus on macroeconomic and public policy topics. Although there are some questions that focus specifically on the UK economy, the setup of the survey is much broader and considers questions related to other countries/regions and also considers questions not tied to a specific economy.
The surveys are done in collaboration with the Centre for Economic Policy Research (CEPR).
The future role of (un)conventional unconventional monetary policy
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Question 2: Do you agree that central banks should operationalise the use of these alternative tools of unconventional monetary policy for use either in the near term, or in the future, as economic conditions warrant?
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Question 1: Do you agree that central banks should continue to use the unconventional tools of monetary policy deployed in response to the global financial crisis as part of monetary policy under normal economic conditions?
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National Living Wage and the UK economy
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Question 2: Do you agree that the new NLW will have a muted effect on wages and prices?
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Question 1: Do you agree that the new National Living Wage is likely to lead to significantly lower employment?
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Brexit and financial market volatility
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Question 2: Do you agree that the possibility of Brexit significantly increases uncertainty and volatility in financial markets and the economy in general?
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