Roger Farmer's picture
Affiliation: 
University of Warwick
Credentials: 
Professor of Economics

Voting history

The UK Productivity Puzzle

In the last two questions you are asked which government policies are best suited to help the UK emerge from its productivity growth slowdown. Question 3 asks for your most preferred policy option, while question 4 asks for your second choice. You may use the comment section to outline specific policy recommendations.

Question 3: Which of the following policies would best help improve private sector productivity?

Answer:
None of the above, other, or no opinion
Confidence level:
Not confident

Question 2: Which of the following was the second most important cause for the slowdown in UK productivity growth?

Answer:
Labour market factors
Confidence level:
Not confident

Question 1: Which of the following was the most important cause for the slowdown in UK productivity growth?

Answer:
Productivity mis-measurement
Confidence level:
Not confident

Labour Markets and Monetary Policy

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Question 2: Do you agree that, in a period of great uncertainty and after a prolonged period of weak real wage growth, monetary policy makers can afford to wait for greater certainty about real wage developments and building inflationary pressure before raising interest rates?

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
I am in favour of continuing with a gradual rate tightening cycle, whilst simultaneously offsetting potential harmful effects on the asset markets through active macro prudential policies. In the current environment, the Bank pays interest on reserves. It is operating a ‘floor system’. Raising the rate on reserves at the same time as raising the overnight lending rate will not lead to monetary tightening in the same way as it would in a world where these rates were allowed to diverge: (a corridor system). Responsibility for maintaining ‘strong sustainable balanced growth’ should be transferred to the Financial Policy Committee, strengthened with the tools to conduct more aggressive interventions in the asset markets.

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Question 1: Do you agree that a strong labour market is a good indicator of building inflationary pressure?

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Answer:
Disagree
Confidence level:
Very confident
Comment:
The Phillips Curve has not been a good characterization of data in any advanced economy since Phillips published his paper on the relationship between wage inflation and unemployment in the UK in 1958. Subsequent empirical developments that purport to find a Phillips Curve in data are not estimating the same relationship uncovered by Phillips, They are instead estimating the “expectations augmented” Phillips Curve. This is an irrefuatable theory that contains an unmeasurable concept; the average subjective expectations of markets participants. The Phillips Curve was a reduced form relationship that existed during a period when world monetary arrangements were governed by the Gold Standard. There is no reason to expect the same reduced form relationship to hold in a world of fiat monies. In my view, central banks and most practicing macroeconomists are currently working with a flawed theory.

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