UK QE reconsidered: the real economy effects of monetary policy in the UK, 1990-2012 – an empirical analysis

Empirical studies of so called ‘unconventional’ monetary policy – ‘Quantitative Easing’ or ‘Large Scale Asset Purchases’ - since the North Atlantic Financial Crisis of 2007-2009 in the United Kingdom and elsewhere have mainly focussed on the effect of policy on intermediate variables rather than the stated ultimate goal of such policies, boosting nominal demand and GDP growth. Secondly and relatedly they tend to focus on the crisis and post-crisis period, a time of extraordinary economic and financial dislocation, which creates counterfactual and attribution problems and fails to capture typical macroeconomic lag dynamics. Adopting the approach of Voutsinas and Werner (2010), and building on Lyonnet and Werner’s (2012) study of UK QE, this paper addresses these weaknesses by 1) examining the impact of various different monetary policy instruments (including Quantitative Easing) directly on UK nominal GDP growth; and 2) using a quarterly time series beginning in the first quarter of 1990 and up to the last quarter of 2012 (92 observations in total). We use the Hendry ‘general-to-specific’ econometric methodology to estimate a parsimonious model. The results show that disaggregated bank credit to the real economy (households and firms) has the most significant impact on nominal GDP growth. Changes to the central bank’s interest rate, central bank reserves, and total central bank asset ratios drop out of the model as insignificant. The policy implication it that, as private banks continue to shrink their balance sheets in the UK and Europe following the North Atlantic Crisis of 2008, central banks might wish to consider ‘unconventional’ monetary policies that more directly boost credit to the real economy and thus nominal GDP growt

From financial risk to financial harm: Exploring the agri-finance nexus and drivers of biodiversity

There is growing awareness amongst both financial policy makers and financial institutions of the need to better understand the links between the financial system and biodiversity loss. Central banks and financial supervisors have so far focused more on the risks posed by biodiversity loss to the financial system (“financial materiality”) than the impacts of finance on biodiversity (“environmental materiality”). In the wider biodiversity-finance sphere, the emphasis has been on the creation of new financial products or investment opportunities associated with the restoration of nature or offsetting damages – so called ‘nature-based solutions’. Less attention has been paid to the institutional relations that connect macro-financial and ecological systems and the growing importance of financial actors, incentives, and practices in shaping human demands upon the biosphere. In this context, we study the agri-finance nexus and find that finance-oriented practices such as maximizing agricultural land productivity, realising capital gains, and achieving scale are systemically associated with land use change and intensive agricultural practices that drive biodiversity loss and degradation. Importantly for policymakers, these findings indicate the financial sector to be indirectly contributing to the threat of breaching critical ecological tipping points, which would pose systemic macrofinancial risks. Central banks and supervisors should focus on their attention on encouraging the avoidance of such practices employing both monetary and (macro-)prudential policy toolkits. Given such activity falls outside the sphere of standard financial regulation, to do so will require greater coordination with other government departments, including environment agencies as well as international financial agencies

IIPP written evidence submission on 'Sustainability of the UK’s National Debt Inquiry'

There is no magic number when it comes to debt sustainability. The sustainability of public debt depends on what the government is investing in. In other words, how debt is being used is more important than the level of debt. Contrary to the discredited argument of economists Carmen Reinhart and Kenneth Rogoff, which linked government debt to weaker economic growth and promoted austerity policies, it is critical to understand that government spending can take the form of investments in the long-range drivers of productivity and growth. These drivers include, for example, education and training, research and development, and wider factors that are critical to building an innovative, resilient, sustainable and inclusive economy. Investment-led sustainable and inclusive economic growth can expand the productive capacity of the economy, which can in turn contribute to a fall in the debt-to-GDP ratio. How this investment is structured is also important. Mission-oriented policies can turn big challenges like climate change into market opportunities, catalyzing cross-sectoral innovation and investment oriented around tackling these challenges, leading to spillovers (Mazzucato, 2021). This can in turn generate a multiplier effect (i.e., where the growth enhancing impacts of government investments are greater than the increase in debt) (Deleidi et al., 2019)

Governing Finance To Support The Net-Zero Transition: Lessons From Successful Industrialisations

The transition to a net-zero carbon economy requires a major shift in financial flows. Financial policy bodies — central banks, financial regulators and ministries of finance — clearly have a role to play in supporting such a shift. Up until now, policy discourse has envisaged this role primarily as one of enabling and de-risking private finance, via support for new ‘green finance’ markets and instruments (e.g. green bonds, sustainability taxonomies and ESG derivatives) alongside encouraging the disclosure of climate related financial risks to support effective price discovery in financial markets. Historically, however, financial policy bodies have played a more direct and coordinative role in industrial and economic development, often via close collaboration with dedicated public financial institutions such as national development banks. This paper examines the governance of industrial credit and capital market financing in six countries - Mexico, Canada, Norway, Japan, Korea and China - which successfully and rapidly industrialised at different periods in the 20th century. We examine how central banks and ministries of finance coordinated financial policy to achieve rapid structural economic change, and consider the implications for the net-zero carbon transition

Gilded Giving: Top-Heavy Philanthropy in an Age of Extreme Inequality

Unprecedented levels of charitable giving in recent years mask a troubling trend. This report shows that charities are increasingly relying on larger and larger donations from smaller numbers of high-income, high-wealth donors. Meanwhile, they are receiving shrinking amounts of revenue from the vast population of donors at lower and middle-income levels. This trend mirrors the increasing concentration of wealth in larger society.The report finds that this has significant implications for the practice of fundraising, the role of the independent nonprofit sector, and the health of our larger democratic civil society. The increasing power of a small number of donors also increases the potential for mission distortion.This study tracks significant changes in philanthropic giving in recent years, puts forward a number of possible implications of these changes, and offers some solutions

Gilded Giving 2018: Top-Heavy Philanthropy and Its Risks to the Independent Sector

What are the risks to the autonomy of the independent nonprofit sector—not to mention our democracy—when a growing amount of philanthropic power is held in fewer hands?This report takes a close look at the impact of increasing economic inequality on the philanthropic sector. It finds that our charitable sector is currently experiencing a transition from broad-based support across a wide range of donors to top-heavy philanthropy increasingly dominated by a small number of very wealthy individuals and foundations.As we reported in 2016, growing inequity in charitable giving continues to hold risks not only for nonprofits themselves, but also for the nation. This is truer now than ever, as ever-greater proportions of charitable dollars technically qualifying as tax-deductible donations are diverted into wealth-warehousing vehicles such as private foundations and donor-advised funds, and away from direct nonprofits serving immediate needs.This updated edition of Gilded Giving focuses on the impact of increasing financial inequality on the philanthropic sector, highlights trends that have either arisen or increased in intensity since the initial publication of our report, puts forward several possible implications of these changes, and suggests some solutions

Theorising and mapping modern economic rents

There is increasing consensus that modern capitalist economies suffer from excessive rent extraction. The neoclassical approach sees rents as emerging from market imperfections—often created by state intervention—which lead to prices above the optimum equilibrium level. Using a mark-up pricing framework, we argue instead that rising rents—which increase the underlying cost structure of the economy through higher overheads—may also induce redistribution of income between capital and labour without price changes. This approach provides a framework for understanding how rising modern economic rents are related to increasing inequality and declining investment and innovation, contributing to ‘secular stagnation’. We then illustrate how rents have become permanent rather than transient in a range of sectors in recent decades and consider how we might better recognise and reduce such rents via policy intervention