1 / 28

with Professor Dale W. Jorgenson

Economics 1490. THE WORLD ECONOMY: GROWTH OR STAGNATION?. with Professor Dale W. Jorgenson. Lecture 15. EUROPEAN POLICY RESPONSE: BREXIT October 19, 2017. Harvard University Department of Economics Fall 2017. THE WORLD ECONOMY: GROWTH OR STAGNATION?. A. Comparing Economies

shelley
Download Presentation

with Professor Dale W. Jorgenson

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Economics 1490 THE WORLD ECONOMY: GROWTH OR STAGNATION? with Professor Dale W. Jorgenson Lecture 15. EUROPEAN POLICY RESPONSE: BREXIT October 19, 2017 Harvard University Department of Economics Fall 2017

  2. THE WORLD ECONOMY: GROWTH OR STAGNATION? • A. Comparing Economies • B. U.S. Crisis and Recovery • C. European Slowdown • D. Asian Economic Miracles • E. Sustainability of Economic Growth • F. World Economic Outlook

  3. EUROPEAN SLOWDOWN • 11. U.S. Growth Resurgence  • 12. Global Trade Slowdown • 13. Europe 2020 and the Single Market  • 14. European Policy Response: The Euro • 15. European Policy Response: Brexit

  4. SUPPLEMENTARY READING Mervyn King (2012), “Twenty Years of Inflation Targeting,” Stamp Memorial Lecture, London School of Economics, October.http://www.lse.ac.uk/website-archive/publicEvents/pdf/2012_MT/20121009-Mervyn-King.pdf Financial Stability Board (2013), “Peer Review of the United Kingdom,” Basel, Bank of International Settlements, September. See: http://www.fsb.org/wp-content/uploads/r_130910.pdf Swati Dhingra, Hanwei Huang, GianmarcoOttaviano, Joao Paulo Pessoa, Thomas Sampson, and John Van Reenan (2016), “The Costs and Benefits of Leaving the EU: Trade Effects,” In Centre for Economic Performance, Brexit 2016, London, London School of Economics, pp. 96-132. http://cep.lse.ac.uk/pubs/download/brexit08_book.pdf

  5. MERVYN KING

  6. MERVYN KING: BIOGRAPHICAL HIGHLIGHTS • Born: Chesham Bois, Buckinghamshire, England, 1948. • Education: B.A., King’s College, Cambridge University, 1969; M.A. • Harvard Connection: Kennedy Scholar. • Professor of Economics, London School of Economics, 1984-1991. • Chief Economist, 1991-1998, Deputy Governor, 1998-2003, Governor, 2003-2013, Bank of England. • Appointed Life Peer by Queen Elizabeth II, Assuming the Title of Baron King of Lothbury, 2013- • Alan Greenspan Professor of Economics, New York University, 2014- • Professor the Lord Mervyn King, London school of Economics, 2015- • Author, The End of Alchemy: Money, Banking, and the Future of the Global Economy, New York W.W. Norton, 2016.

  7. INFLATION TARGETING COMES TO THE BANK OF ENGLAND Twenty years ago today, on 9 October 1992, the newspapers reported that for the first time monetary policy in Britain would be based on an explicit target for inflation. Three weeks earlier, sterling had been forced out of the European Exchange Rate Mechanism (ERM). A new framework for monetary policy was needed. After keen debates within the Treasury and the Bank of England, the answer emerged – the inflation target. The essence of this new approach was the combination of a numerical target for inflation in the medium term and the flexibility to respond to shocks to the economy in the short run – and so the framework became known as flexible inflation targeting.

  8. TWENTY YEARS OF EXPERIENCE WITH INFLATION TARGETING It is time to reflect on twenty years’ experience of inflation targeting; fifteen years of stability and five years of turbulence – the Great Stability and the Great Recession, shown in Table 1 and Charts 1-3. Over that period, monetary policy around the world has changed radically. Inflation targeting has spread to more than 30 countries. And the results in terms of low and stable inflation have been impressive. There have been pronounced reductions in the mean, variance and persistence of inflation in Britain and elsewhere. During the past twenty years, annual consumer price inflation in this country has averaged 2.1%, remarkably close to the 2% target and well below the averages of over 12% a year in the 1970s and nearly 6% a year in the 1980s.

  9. U.K ECONOMIC PERFORMANCE

  10. U.K. GDP LEVEL

  11. U.K. GDP GROWTH RATE

  12. U.K. INFLATION

  13. MARK CARNEY

  14. MARK CARNEY: BIOGRAPHICAL HIGHLIGHTS • Born, Fort Smith, Northwest Territories, Canada, 1965. • Harvard College, B.A., Economics, Class of 1988, Winthrop House. • Oxford University, Ph.D., Economics,1995. • Governor, Bank of Canada, 2008-2013 • Governor, Bank of England, 2013-

  15. INSTITUTIONAL AND FUNCTIONAL CHANGES AT THE BANK OF ENGLAND The Bank of England is currently experiencing its most important institutional and functional changes in a generation. Failings in pre-crisis arrangements have prompted the Government to introduce wholesale changes to the UK regulatory landscape which come into force in April 2013. This regulatory reform has resulted in the Bank gaining significant new responsibilities, including for: microprudential regulation of insurers, deposit-takers and major investment firms, through the creation of the Prudential Regulation Authority; macroprudential regulation of the financial system as a whole, through the creation of the Financial Policy Committee; and supervision of some critical post-trade financial market infrastructure providers.

  16. NEW REGULATORY FRAMEWORK

  17. STATUTORY RESPONSIBILITIES

  18. MEMBERSHIP

  19. EUROPEAN POLICY RESPONSE: SUMMARY AND CONCLUSIONS • The Bank of England Has Responsibility for All Areas of Financial Policy. • Monetary Policy Is the Responsibility of the Monetary Policy Committee. • Micro-Prudential Regulation Is the Responsibility of the Prudential Regulation Authority • Macro-Prudential Regulation is the Responsibility of the Financial Policy Committee • All Three Are Chaired by Mark Carney ’88.

  20. EUROPEAN POLICY RESPONSE: POLICY RULES • Baron King of Lothbury, formerly Sir Mervyn King, Governor of the Bank of England, Argues for Continued Reliance on Flexible Inflation Targeting. • This is Insufficient Due to Systemic Risk. • The Prudential Regulation Authority Will Use Basel III Rules for Micro-Prudential Regulation. • The Financial Policy Committee Will Use the Recommendations of the Financial Stability Board, Chaired by Mark Carney ’88, for Macro-Prudential Regulation.

  21. LIFE AFTER BREXIT • Formal Procedures for Leaving the European Union Were Introduced in the Lisbon Treaty of 2009. • The UK Referendum to Leave the EU Passed in June 2016. • The UK Notified the EU of Its Intention to Leave under Article 50 of the Lisbon Treaty in March 2017. • This Has Led to Negotiations over a Withdrawal Agreement with the Rest of the EU. • The UK Could Leave at the Date Stipulated by the Agreement or, If There Is No Agreement, after Two Years from the Notification.

  22. WITHDRAWAL FROM THE EU: FREQUENTLY ASKED QUESTIONS 1. What Is the Status of UK Citizens and Businesses Resident in the EU and EU Citizens and Businesses Resident in the UK? 2. How Would UK Law Change after Withdrawal from the EU? 3. What Would UK Policies Be in Areas Currently under the Authority of the EU? 4. Would There Be a Transition Period? 5. Would Free Trade between the UK and the EU Continue? What About Labor Mobility? Right to Do Business?

  23. THE NORWEGIAN MODEL • The UK Could Join the European Economic Area (1994) and Participate in the Single Market. • The Single Market Requires Free Movement of Goods, Services, People, and Capital within the EEA. • Members of the EEA Must Implement EU Rules for the Single Market, But Have No Voice in Determining the Rules. • EEA Members Pay a Fee to Belong to the Single Market, Similar to Contributions to the EU Budget by EU Members. • The Single Market Is Not a Customs Union So That the UK Would Have to Determine Its Own Rules for Trade Outside the EU.

  24. THE SWISS MODEL • Switzerland Is a Member of the European Free Trade Association, Which Provides Free Trade in Non-Agricultural Goods. • All Other Matters of Free Movement of Goods, Services, People, and Capital Are Determined by Bilateral Treaties. • Exclusion from the Single Market Would Limit the UK’s Access to European Markets for Business and Financial Services • Switzerland Makes a Financial Contribution to the EU Budget for Participation in Programs It Chooses. • EFTA Would Involve the Same Disadvantages for the UK as the EEA.

  25. THE CANADIAN MODEL • The UK, Like Canada and 159 Other Members, Belongs to the World Trade Organization. • This Requires Most Favored Nation Treatment  for Market Access by WTO Members. • The WTO Does Not Require Adherence to EU Rules. • No Budget Contribution to the EU Would Be Required. • No Freedom of Movement of People Would Be Required with the EU.

  26. BREXIT: COSTS AND BENEFITS • Suppose that the UK Leaves the EU and Become a Member of the EFTA (The Swiss Model). • First Question: What Effect Will Leaving the EU Have on UK Trade with the Rest of the World? • Second Question: What Is the Effect of Changes in Trade on Income (GDP)? • Reduced Form Approach: Fit a Gravity Equation to Data on International Trade • Reduced Form Approach: Estimate Effect of Trade on Income.

  27. SUPPLEMENTARY READING GRAVITY EQUATION Scott L. Baier, Jeffrey H. Bergstrand, Peter Egger, and Patrick A. McLaughlin (2208), “Do Trade Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism,” The World Economy, Vol 23, Issue 4, April, pp. 461-497. http://onlinelibrary.wiley.com.ezp-prod1.hul.harvard.edu/doi/10.1111/j.1467-9701.2008.01092.x/epdf INCOME EQUATION James Feyrer (2009), “Trade and Income: Exploiting Time Series in Geography,” NBER Working Paper 14910, Cambridge, MA, NBER, April. http://www.nber.org/papers/w14910.pdf

  28. REDUCED FORM APPROACH • Leaving the EU and Joining the EFTA (Switzerland Model) Reduces UK Trade with EU Members by 25%.   • Since 50.4% of UK Trade Is with the EU, UK Trade Is Reduced by 12.6%. • Elasticity of Income with Respect to Trade is Between One-Half and Three-Quarters. • Leaving the EU and Joining EFTA Will Reduce UK GDP by 6.3% to 9.5% • These Estimates Are Similar to Historical Estimates of UK Benefits from Joining the EU.

More Related