Tuesday , October 24 2017
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Tony Yates: Long and Variable

Long and Variable is a blog about monetary policy and central banks. Authored by Professor Tony Yates (University of Birmingham), this blog is quite detailed and knowledgeable about global monetary policy.

Stopping Brexit won’t take the economy back onto its pre-referendum path

Nick Clegg’s latest article on how to stop Brexit, and the OECD report on Britain arguing that reversing Brexit would boost UK growth, prompted this post. The OECD writes: “In case Brexit gets reversed by political decision (change of majority, new referendum, etc.), the positive impact on growth would be significant.” Nick Clegg writes: “…it is parliament that can save us from the fate of Brexit and, at last, I now believe it will.” On economic grounds this would be a good idea,...

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‘No deal’ spending isn’t a complete waste of money, Mr Hammond

Chris Giles, FlipchartRick and others have explained why Philip Hammond is reluctant to spend money on trying to mitigate the economic costs of failing to agree any kind of deal by the time the A50 notice period expires in March 2019. In a nutshell, the argument is that the systems and infrastructure needed won’t be even nearly complete by that date, and half-finished preparations will not make a dent in the costs of not having a deal. No piece of Brexitology is complete without an...

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The vicious circle impeding the entry of a new currency

Cryptocurrency prices have been soaring and taking and soaring again.  Here is a chart of the Bitcoin/£ exchange rate: The following thought experiment shows how a new currency with a fixed supply protocol may find it hard to break through and gain wide usage.  One of the conditions for widespread use as a money is that it’s value is not too unstable. You can imagine a period of relative stability, or at least predictable growth, when users think ‘this new currency could be the next...

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Larry Summers on the passing need for central bank independence

Larry Summers wrote this piece recently, marking the 20 year celebrations of independence for the UK’s Bank of England, explaining why he thought the case for central bank independence was now weaker than in the past.  I am going to push back on his arguments, one by one. Larry writes: “..after a splurge of indiscipline following the breakdown of Bretton Woods, politics seem to have internalized anti-inflation norms so insulation from politics is less important. It is noteworthy that...

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Agreeing a central bank communication strategy

In conversation at MMF yesterday, a few of us were discussing what it would take to tip the MPC or similar into deliberating on, voting on, and publishing interest rate plans?  With their frequent yield-curve-talking, MPC are heading towards this point [a point which their FPC colleagues already seem to have reached] but they are not there yet.  A thought experiment is to imagine the appointment of a hypothetical advocate of publishing said plans. Let’s call this person Pupa, short for...

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Do monetary policy committees present an insuperable barrier to Odyssian forward guidance?

One kind of forward guidance – consciously eschewed by central banks during the crisis – was dubbed ‘Odyssian’. The idea was that, deprived of being able to move the short interest rate by the zero bound, central banks would attempt to lower the long rate by promising to keep the short rate in the future lower than would normally be thought consistent with the inflation target. The name derives from the Greek tale of the warrior instructing that his hands be tied to the mast of his...

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Has central bank independence had its day?

Charles Goodhart, speaking at the Bank of England’s recent conference celebrating 20 years of central bank independence, was reported to have said ‘it was nice while it lasted’.  Andrew Benito of Goldman Sachs, speaking on a panel at a Money Macro Finance conference on monetary policy, made a similar point. Is this right?  Is central bank independence really over?  Some of the daftest Brexiteers, like Ruth Lea and Diane James, think so. As these tweets reveal, they imagine that the...

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Bitcoin and the lender of last resort function

Dario Perkins of Lombard St Research got me thinking about whether Bitcoin – or some other digital cryptocurrency – would obviate the need for or possibility for a lender of last resort.  Without implicating him in any bad thinking here, what follows came out of our conversation. Some [for example, see this by Axel Weber] see that the impossibility of a lender of last resort will prevent Bitcoin from becoming, or being allowed to become the medium of exchange/unit of account. Others...

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Where does the false balance policy come from in the broadcast media?

Ben Chu and Simon Wren Lewis have both opined on how the broadcast media let us down in their coverage of Patrick Minford’s memo as chair of ‘Economists for Free Trade’.  They make the point that an impression of false balance of  competing opinions was created by the juxtaposition of Minford’s ‘report’, and Minford himself, with an interlocutor from the opposing side. This latest episode is a recurrence of a frequent problem on the topic of Brexit economics. There are not many points...

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