Question A:
The costs and risks associated with a sharp fall in the value of sterling outweigh any macroeconomic benefits for the UK of export stimulus due to a weaker currency.
Responses
Responses weighted by each expert's confidence
Question B:
Concerns about government finances and debt sustainability can undermine the reserve currency status of a major currency.
Responses
Responses weighted by each expert's confidence
Question A Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
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 John Campbell |
Harvard | Bio/Vote History | ||
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Sterling depreciation raises inflation which requires monetary tightening. Interest rates are already rising and now must rise more sharply, with destabilizing effects on households, through mortgage rates, and on leveraged financial intermediaries.
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 John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Both costs and benefits of short-term currency movements are over rated. And what to do about it? Absent a peg with ironclad fiscal commitment, propping up or devaluing the currency is not a wise policy.
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 Francesca Cornelli |
Northwestern Kellogg | Bio/Vote History | ||
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The depreciation was due to concerns regarding the fiscal policy which will also affect the long run macro effects. In addition, the entire export policy of the UK has to be reassessed following Brexit.
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 Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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 Darrell Duffie |
Stanford | Bio/Vote History | ||
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It didn't seem to be a managed tradeoff for exports, but rather that it was an unintended adverse fiscal shock that the Bank of England was forced to partially accommodate. The BoE was also left with the task of managing significant spillover risks to financial stability.
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 Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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Two issues: i) the pound fell endogenously in response to announced fiscal changes, which also have an effect on markets; and ii) any export benefits occur on a longer time scale than the market reaction to fiscal and exchange rate effects.
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 Xavier Gabaix |
Harvard | Bio/Vote History | ||
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 Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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 John Graham |
Duke Fuqua | Bio/Vote History | ||
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 Lars Hansen |
UChicago | Bio/Vote History | ||
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Exchange rate movements can signal both long term concerns about future government policy and the need for realignment between import and export prices. The former can be unnecessarily costly in contrast to the latter.
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 Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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 David Hirshleifer |
USC | Bio/Vote History | ||
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 Harrison Hong |
Columbia | Bio/Vote History | ||
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Studies of debt crises linked to sharp depreciation depending on how debt is structured.
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 Wei Jiang |
Emory Goizueta | Did Not Answer | Bio/Vote History | |
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 Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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 Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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 Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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 Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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 Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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 Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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 Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Question framed in a potentially misleading way. Currency depreciation in this case appears to be a symptom rather than a cause of economic problems driven by policy missteps that should be the focus of concern
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 Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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I think the costs of large and disorderly market moves can be large, especially if systemic financial institution get into trouble as a result. The benefit to the UK of a depreciation is hard to assess (the evidence is mixed in the literature) and probably significantly smaller.
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 Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
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 Tobias Moskowitz |
Yale School of Management | Did Not Answer | Bio/Vote History | |
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 Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Getting inflation under control is a main challenge in the current situation and weak sterling makes this more difficult.
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 Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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The value of sterling should decline given changes in inflation and in British economic institutions and growth. While it has overshot due to the BOE's low rates, the external exposures that would amplify this decline into a financial crises do not appear to be present.
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 Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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Capital flows much more rapidly than exports.
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 Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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 Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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 Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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 Paola Sapienza |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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 Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Depends.
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 Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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 Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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 Jeremy Stein |
Harvard | Bio/Vote History | ||
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 Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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 Amir Sufi |
Chicago Booth | Bio/Vote History | ||
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 Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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 Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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 Ingrid M. Werner |
OSU Fisher School | Bio/Vote History | ||
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Depends on the horizon.
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 Toni Whited |
UMich Ross School | Bio/Vote History | ||
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Question B Participant Responses
| Participant | University | Vote | Confidence | Bio/Vote History |
|---|---|---|---|---|
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John Campbell |
Harvard | Bio/Vote History | ||
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This happened a century ago with the replacement of the British pound by the US dollar as the world's major reserve currency. Today there is no obvious alternative to the dollar, but a shift in reserve currency structure remains a possibility albeit unlikely.
-see background information here |
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John Cochrane |
Hoover Institution Stanford | Bio/Vote History | ||
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Concern about debt sustainability can certainly drive currency lower and inflation higher. "Reserve currency" status is over-rated. EU governments, and Switzerland too can borrow at similar rates and quantities to US.
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Francesca Cornelli |
Northwestern Kellogg | Bio/Vote History | ||
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If the concerns are linked to the feasibility of the fiscal policy (as it is in this case) then I would agree, but it depends on that point of view.
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Douglas Diamond |
Chicago Booth | Bio/Vote History | ||
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Future depreciation concerns can become self-fulfilling if confidence is lost. This may be due to perceived future loose monetary policy or government debt monetization.
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Darrell Duffie |
Stanford | Bio/Vote History | ||
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Is this a "trick question"? Reserve-currency benefits depend on stable prices and a well functioning government securities market, with government bonds that act as a safe haven. Concerns about government finances and debt sustainability clearly don't support those conditions.
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Janice Eberly |
Northwestern Kellogg | Bio/Vote History | ||
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The stability and liquidity of a reserve currency rely on relative fiscal and monetary stability, as well as scale, for a global reserve currency.
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Xavier Gabaix |
Harvard | Bio/Vote History | ||
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Itay Goldstein |
UPenn Wharton | Bio/Vote History | ||
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John Graham |
Duke Fuqua | Bio/Vote History | ||
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Lars Hansen |
UChicago | Bio/Vote History | ||
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Campbell R. Harvey |
Duke Fuqua | Bio/Vote History | ||
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There are two ingredients for a reserve currency: 1) a large economy and 2) a perception that the economy will be relatively stable in the future. Concerns over debt sustainability inject additional uncertainty. It is well known in finance that additional leverage increases risk.
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David Hirshleifer |
USC | Bio/Vote History | ||
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Harrison Hong |
Columbia | Bio/Vote History | ||
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Agree with statement theoretically though evidence isn't so clear on this issue.
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Wei Jiang |
Emory Goizueta | Did Not Answer | Bio/Vote History | |
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Steven Kaplan |
Chicago Booth | Bio/Vote History | ||
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Anil Kashyap |
Chicago Booth | Bio/Vote History | ||
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I have been a member of the Bank of England Financial Policy Committee and we are in our quiet period, so not appropriate for me to be commenting on this.
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Ralph Koijen |
Chicago Booth | Bio/Vote History | ||
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Camelia Kuhnen |
UNC Kenan-Flagler | Bio/Vote History | ||
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Andrew Lo |
MIT Sloan | Did Not Answer | Bio/Vote History | |
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Michelle Lowry |
Drexel LeBow | Bio/Vote History | ||
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A key factor underlying a reserve currency is trust. Trust is built upon sound government finances and sound policies.
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Sydney Ludvigson |
NYU | Bio/Vote History | ||
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Lots of factors can come into play (e.g., even if debt sustainability is a concern for the reserve currency, it may be even more of a concern for all the conceivable alternative reserve currencies), but the UK experience and history should at least be instructive
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Matteo Maggiori |
Stanford GSB | Bio/Vote History | ||
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A loss of investor confidence in the fiscal commitment of a reserve country to maintaining the real value of its debt repayments is the core threat to the status of that currency. At the core, a reserve currency is a fiscal commitment to providing a safe asset.
-see background information here |
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Gregor Matvos |
Northwestern Kellogg | Bio/Vote History | ||
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The much more uncertain but pertinent question is what triggers debt sustainability concerns of sufficient magnitude.
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Tobias Moskowitz |
Yale School of Management | Did Not Answer | Bio/Vote History | |
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Stefan Nagel |
Chicago Booth | Bio/Vote History | ||
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Jonathan Parker |
MIT Sloan | Bio/Vote History | ||
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Reserves are held in safe assets. Safe assets must be safe in times of crisis. Times of crisis pose fiscal challenges for countries with fiscal imbalances and high debt levels. The debt of a country with little fiscal space to handle crises is not a good reserve asset.
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Christine Parlour |
Berkeley Haas | Bio/Vote History | ||
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Sterling used to be a reserve currency until the size of the economy and the rise of the dollar undermined it.
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Thomas Philippon |
NYU Stern | Bio/Vote History | ||
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Manju Puri |
Duke Fuqua | Bio/Vote History | ||
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For non-US currencies.
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Michael R. Roberts |
UPenn Wharton | Bio/Vote History | ||
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Paola Sapienza |
Northwestern Kellogg | Did Not Answer | Bio/Vote History | |
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Amit Seru |
Stanford GSB | Bio/Vote History | ||
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Depends how large the shocks are that lead to these concerns. Certainly true at the corner.
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Robert Stambaugh |
UPenn Wharton | Bio/Vote History | ||
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Laura Starks |
UT Austin McCombs | Did Not Answer | Bio/Vote History | |
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Jeremy Stein |
Harvard | Bio/Vote History | ||
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Johannes Stroebel |
NYU Stern | Bio/Vote History | ||
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Amir Sufi |
Chicago Booth | Bio/Vote History | ||
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Sheridan Titman |
UT Austin McCombs | Bio/Vote History | ||
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Stijn Van Nieuwerburgh |
Columbia Business School | Bio/Vote History | ||
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the global safe haven currency has enjoyed extra fiscal capacity over the past three centuries, but that status switches periodically, and high debt is one factor that can make a contry lose that status.
-see background information here |
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Ingrid M. Werner |
OSU Fisher School | Bio/Vote History | ||
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Depends on which currency, Dollar, Euro, Yen.
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Toni Whited |
UMich Ross School | Bio/Vote History | ||
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