Inflation has risen in the US, the UK, the Euro Area and elsewhere, as demand has increased following the opening up of the economy after pandemic-induced lockdowns, and supply chains have been disrupted. This has produced a debate amongst the economic commentariat about whether they are on ‘team transitory’ [the rise in inflation will be temporary] or ‘team permanent’ [you get the idea]. The debate does not really make much sense. It is very difficult to justify being on ‘team permanent’. There are not many circumstances whereby the rise in inflation could become permanent and they they requi ..read more

I just noticed that Mervyn King, former Bank of England Governor, has taken a place on the HoL Economic Affairs Committee, and is therefore due to take part hearing evidence in an enquiry on quantitative easing [QE]. This is a curious state of affairs. Lord King was head of the Bank when QE was instigated in March 2009, and piloted the program, which involved not just monetary policy decisions by the MPC, but also important execution decisions in the markets area, with the set up of reverse auctions, and decisions about what assets to purchase. An enquiry into QE is bound to either explicitly ..read more

You can find it here. Anyone teaching international trade, game theory, time consistency, should find this period full of great – if tragic – teaching material. I just read this great thread by one of the researchers involved in the Oxford/AZ vaccine too, so read this. It is extraordinary how covid19 has affected not only all our lives, but all our social and economic policy debates. Although it would be relentless and depressing, you could teach an entire economics degree using covid19 as a case study ..read more

A while back I argued that the government should set up an independent body charged immediately with producing integrated economic and epidemiological forecasts, analysis and virus/fiscal policy options. With the vaccine roll out proceeding at >400k shots per day, and the end of lockdown measures in sight, has the time for a body like this come and gone? I don’t think so. For a start, if we had such a body now we could be debating openly and transparently how to allocate vaccines; and how to time the relaxation of social distancing measures. This would make policy more easily scrutinized, a ..read more

Talking to a friend today he pointed out how the pandemic, and a potential disorderly Brexit, compound each other. The way for consumers and firms to get through a threatened interregnum in essential supplies, to ensure continuity of services and, in the case of the consumer, of life itself! is to stockpile. An unusually large surplus of spare parts, inputs, or just food, can tide you over in case the sudden imposition of trade frictions, or panic about them, causes supplies to dry up. However, stockpiling costs money. The opportunity cost is the cost of finance. Although risk free rates are l ..read more

In a previous post [scroll down!], I called for the UK [and other countries] to set up new, local centres for Economics and Epidemiology.  This is because the economic-epidemiological outlooks are impoverished by the two disciplines – at least at the point of making contact with policy and actual forecasts – are cleaved in two.  Epidemiological forecasts have too little economics;  macroeconomic forecasts have no epidemiology.  The result is public health and economic policymaking that is not on a sure foundation. The problem can be remedied relatively cheaply.  Perhap ..read more

The UK covid19 crisis kicked off with forecasts of the epidemic with and without mitigation measures like lockdowns.  They were ultimately alarming enough to persuade the government to lockdown. The forecasts joined epidemiological insights with social science – evidence on the propensity of different groups to contact each other.  But they did not tread further into economics.  Economists like Toqvaerd and Fenichel, and subsequently many others who joined in after covid19 emerged  [including Moll, Werning, Acemoglu, Eichenbaum, Trabandt, Rebelo and more] showed how to take ..read more

I am crystallizing my concern about retail vouchers, part of Rishi Sunak’s latest package [and recommended by others, including one of my affilliations/clients, Resolution Foundation], and mostly thanks to a Jason Furman tweet. Sunak has seen his challenge as wanting to target stimulus and support policies at the sectors hardest hit by the covid19 crisis.  This motive is understandable.  Despite what the MMT headcases will tell you, fiscal support involves the government using scarce current and future tax raising powers. So you want to maximise the bang for your buck.  Why give ..read more

The Bank of England is, arguably, at the end of the road as far as currently agreed methods of monetary stimulus are concerned. Interest rates are at their effective floor – in the UK, as understood by the Monetary Policy Committee – 0.1 per cent.  QE purchases of assets stand at £745bn.   This is unlikely to have done much harm [although some contest this] but equally, has probably not, at least as far as its later increments are concerned, imparted much stimulus either.  At root QE policy is about swapping one zero interest, default-risk-free asset for another [reserves f ..read more

It has been much commented on that the UK entered its lockdown to combat covid19 too late.  This had the consequence of allowing the virus to gain more of a foothold, generating an increasing flow of infections that quickly swamped our test and trace capacity at that point. That in turn had the effect of meaning that the lockdown we did introduce needed to be in place for longer than otherwise.  The lockdown has the effect of reducing the reproductive rate of the virus, by reducing the number of contacts we have and the infections produced from them.  If the number of cases that ..read more