Treasury Committee Questionnaire completed
by Ms Marian Bell
A. PERSONAL AND
1. Do you have any business or financial connections
or other commitments which might give rise to a conflict of interest
in carrying out your duties as a member of the MPC?
2. Are there any relevant personal or other
factors of which the Treasury Committee should be aware in considering
3. Do you intend to serve out the full term
for which you are appointed?
4. Please explain how your experience to date
has equipped you to fulfil your responsibilities as a member of
I am trained as an economist and have nearly
20 years experience working as a professional economist. For much
of this time I have looked at the UK economy. This has been in
the context of a clearing bank's lending and deposit-taking business,
HM Treasury, and the trading and customer business of a financial
markets dealing room. For the last 10 years a large part of my
focus has been on the conduct of monetary policy, in the UK and
overseas, and on forecasting financial market variables, as an
input into the strategic decisions of traders in the financial
markets and their business customers. I have formed interest rate
policy judgments in my role as a member of the shadow Monetary
Policy Committee, the "Real-World MPC", set up by Sunday
I have experience in forecasting, including
the use of econometric models and the formation and application
of forecasting judgments as a supplement to purely model based
forecasts. I am experienced in looking at and interpreting a wide
range of economic data, ranging from official statistics to private
sector data and business surveys.
I have experience of explaining monetary policy,
and my own views on it, to non-professional audiences from business,
financial institutions and the general public. Over the last 10
years I have frequently spoken to groups of businessmen and women
and have appeared regularly in the media explaining economic and
monetary issues in lay terms.
5. How important do you think it is for MPC
members to be subject to ex post parliamentary accountability?
Could the current procedures be improved?
I believe it is extremely important for monetary
policy to be subject to democratic parliamentary scrutiny. In
the context of an operationally independent Bank of England established
by the Bank of England Act, where interest rate decisions are
made by the Monetary Policy Committee, this entails that MPC members
be accountable to Parliament for their decisions. Due to the lags
in the operation of monetary policy, the wisdom of a particular
decision can only be properly assessed after a considerable delay,
and then with difficulty. It is however right that, in the interim,
individual members explain the reasons behind their decisions
to Parliament, through this Committee. As far as I can ascertain
through watching the proceedings of this Committee and reading
their reports, the current system seems to work well and provide
sufficient information for this Committee to hold MPC members
6. If you were to stand for reappointment
to the MPC at the end of your term, what criteria do you believe
should be used to assess your individual record as a MPC member?
The prime criterion for assessment would have
to be how I have contributed to the achievement of the MPC's briefthe
achievement of the inflation target and, subject to that, the
subsidiary goals. My contribution should be discernible through
the published minutes, evidence to this committee, and wider communication
through interviews, speeches and regional visits. Thus the manner
in which I have communicated my reasoning would also be a criterion
of assessment, as would the range of information I have considered
in forming my opinions, including published data; informal evidence
from regional visits and meetings with a variety of economic participants
from a range of sectors and regions; research and analysis.
C. MONETARY POLICY
7. Is the framework of an explicit inflation
target the best within which to conduct monetary policy?
I believe it makes sense to articulate the monetary
policy objective in terms of its ultimate goal by making explicit
the rate of inflation that is being sought. A precisely defined
inflation target also provides a better focus for policy and makes
it easier to hold the Monetary Policy Committee accountable for
its actions than would the more loosely defined `A price stability'
objective on its own. Clarity about the target also enhances the
credibility of the process and helps tie down the inflation expectations
of economic agents.
8. What consideration should be given to asset
prices, including house prices and the exchange rate, within the
framework of inflation targeting?
To the extent that asset prices are included
in the measure of inflation which is targeted, as house prices
are in RPI(X) through the depreciation term, then they are clearly
of direct concern. Otherwise, consideration should be given to
asset prices only in so far as they affect the prospects for the
targeted inflation rate. In the case of a rise in asset prices,
this would usually be through a boost to consumption via the wealth
effect and housing equity withdrawal; but the creation of an asset
price bubble could also have implications for inflation in the
event of a disorderly correction. Although consideration should
be given to the role of asset prices in the monetary transmission
mechanism, I would be concerned that any greater concentration
on movements in particular asset prices would risk focusing on
changes in relative prices and in portfolio preferences rather
than on the overall price level. The MPC should not have a target
for any particular price in the economy.
Similarly, while I recognise the difficulties
for particular sectors, consideration can be given to the exchange
rate only in so far as it affects the prospects for the targeted
9. Is it appropriate to concentrate on the
projection of RPI(X) at the two-years ahead point?
It takes time for changes in the policy controlled
interest rate to affect inflation. The lags have varied over time,
but the rule of thumb that it takes about two years for a move
in interest rates to have its maximum cumulative impact on inflation
appears reasonable. In setting policy it is appropriate therefore
that the Monetary Policy Committee look ahead around two years.
To attempt to control inflation over a significantly shorter time
period could result in unacceptable volatility in activity and
interest rates. Nevertheless the Committee is charged with keeping
inflation at 2.5 per cent at all times and so should also pay
attention to the path of inflation.
10. Do you believe that there is any trade-off
between inflation and unemployment (or output) in the short-run
or in the long-run?
I believe there can be a short-run trade-off
between output and inflation. This has been a frequent feature
of the data, with strong output growth (and falling unemployment)
associated with rising inflation, and vice-versa. In the long-run
however the relationship seems to be the other way round, lower
inflation being associated with higher levels of output (and lower
levels of unemployment). While the level of economic activity
is constrained in the long-run by the economy's ability to supply
and cannot be boosted other than in the short-term by demand stimulus,
there is evidence that low and stable inflation can lead to supply-side
improvements and higher levels of sustainable output (see also
my answer on the output gap below).
11. What are the consequences of the current
imbalances within the economy for future inflation and growth?
What can monetary policy do to address these imbalances?
There has been much concern about the divergent
performance of the traded and non-traded goods sectors of the
economy, which has led to very different growth rates in the manufacturing
and service sectors. I am afraid that monetary policy aimed at
an inflation target can do little to ease the imbalance. Policy
must be concerned with the whole economy and the pressure on prices
overall. The relative performance of different sectors and relative
price changes can only be a matter for the Committee where overall
inflation is affected.
Another current imbalance may be thought to
be the high level of household indebtedness and the low personal
savings ratio. The present consequence of this is more rapid growth
in consumption and overall economic output, with consequently
increased inflation pressure, than would otherwise be the case.
Although low interest rates have suppressed debt service costs,
the effect of the high debt levels could be to make consumption
more sensitive to changes in interest rates. Of particular concern
would be a rapid correction of these imbalances, which could have
a pronounced negative effect on growth and inflation. Although
the scope for monetary policy to address the imbalances is constrained
by the primacy of the inflation target, reacting to any inflation
implications might have the added merit of encouraging an orderly
12. What is your assessment of the outlook
for UK productivity growth?
On the face of it the UK, in common with most
other industrialized countries, does not appear to have enjoyed
the productivity improvement consequent on the utilization of
new information, communications and telecommunications (ICT) technology
that has been seen in the US. Work by the IMF, however, suggests
that some such improvements have indeed been experienced in the
UK and elsewhere, but have been masked by other offsetting factors.
That would suggest that ICT based productivity improvements are
a more broadly based phenomenon that had previously appeared to
be the case. One might therefore expect that, as use of the new
technologies intensifies and becomes more widespread, and other
factors unwind, this might show up in an overall improvement in
the UK's rate of productivity growth. Historic experience however
suggests it would be wise to exercise caution in assuming such
an improvement in the exercise of monetary policy until it is
established by the data.
13. What weight do you place on (a) the monetary
aggregates and (b) the output gap in your assessment of inflation
I place weight on both the monetary aggregates
and the output gap in my assessment of inflation prospects, but
would apply neither in a mechanistic way.
(a) That growth in the money supply
leads growth in nominal activity is an established phenomenon
across countries and time-periods. However the relationship is
not precise and there is considerable variation in both the strength
of the relationship and the length of the lags involved. Nevertheless
I believe that the monetary aggregates, and their credit counterparts,
can contain useful information about the transmission of monetary
policy from a movement in policy controlled interest rates through
to the rate of growth of activity and inflation. Movements in
the monetary aggregates can thus help in the assessment of the
appropriateness of the monetary stance.
(b) The concept of the output gap as
a measure of the amount of spare capacity or excess demand is
a useful analytic tool in helping one to think about the economy
and assess the degree of inflationary pressure. Its use is not
without problems however. The output gap is not directly observable.
It has to be estimated from the current level of output (itself
subject to measurement error and frequent revision) and an assessment
of the level of full capacity, or trend, output.
Trend output is normally extrapolated by applying
an estimated trend growth rate from a point in the past when the
economy is thought to have been at trend. There is a risk in this
approach that the economy's supply potential is treated as a given
and independent of the structure of the economy, technological
developments, recent economic performance and macro-economic policy.
This, I believe, would be a mistake. For example, recessions erode
an economy's supply potential as capital is scrapped and labour
deskilled by inactivity. Conversely, steady growth can improve
an economy's ability to supply by promoting investment and bringing
excluded labour back into employment where skills can be rebuilt.
A willingness to allow for this possibility
on the part of the US Federal Reserve under the chairmanship of
Alan Greenspan appears to have been a feature of the long period
of US economic expansion that ended last year. This episode took
US output considerably higher, and unemployment lower, with no
pick-up in inflation, than would have been thought possible ex
ante using conventional analysis based on the output gap.
14. To what extent should fiscal policy play
a demand management role alongside monetary policy in the short-run?
Fiscal policy, like monetary policy, affects
aggregate demand. However, in my view, fiscal policy is a more
blunt and less flexible instrument of demand management than monetary
policy. Fiscal policy is adjusted less frequently than monetary
policy and so is less able to adjust to short-run changes in the
economy. Moreover fiscal policy has other roles to play that constrain
its ability to act in the sphere of demand management, whereas
monetary policy is not subject to constraints. Overall fiscal
policy is, quite sensibly, constrained by fiscal rules while changes
to particular tax and benefit rates alter incentives and thus
economic behaviour. These considerations suggest that monetary
policy should bear the burden of demand management. However the
automatic stabilisers, which give fiscal policy an automatic counter-cyclical
impact and are not subject to the above constraints, should be
allowed to operate.
Of course, the impact of fiscal policy on the
economy has to be taken into account in setting monetary policy.
15. What role should econometric models play
in the formulation of interest rate policy?
Econometric models can be a useful aid in understanding
and forecasting the economy. They can be a consistency check (eg
ensuring the national accounts add up and the balance of payments
balance), and can help identify and summarise key relationships,
accounting and behavioural. However they are, at best, only an
approximation of how the economy works. In particular, the estimated
equations explain past economic behaviour and may be a poor guide
to the future. Models should be used pragmatically. One might
want to consult a variety of models, and purely model-based forecasts
should be supplemented by judgment. Indeed the evidence is that
forecasts from econometric models are enhanced by the application
|1969-76||Bentley Wood High School, Stanmore, Middlesex
Philosophy, Politics and Economics
University of Oxford
|1984-86||MSc Economics (with distinction)|
University of London
|September 2000-April 2002||Director, alpha economics|
Set up alpha economics to undertake economic consultancy.
|November 1991-July 2000||Treasury and Capital Markets, The Royal Bank of Scotland|
Set up and subsequently managed the economic research capability for The Royal Bank of Scotland's Treasury and Capital Markets, where I was responsible for monthly and weekly publications.
Reuters UK interest rate forecaster of the year, 1999 for UK base rate, three month Libor and 10 year gilt yields
|October 1989-October 1991||Economic Adviser, HM Treasury
|October 1985-October 1989||Senior Economist, Group Economics Office, The Royal Bank of Scotland|
Managed the economics team responsible for providing country risk analysis and UK macro-economic commentary and forecasts to The Royal Bank of Scotland Group.
|December 1982-September 1985||Economist, Economics Office, Williams and Glyn's Bank
|August 1980-November 1982||The London Enterprise Agency|
Worked on advising and training small businesses, inner city regeneration projects, press relations.
|April 1999-||Fellow of The Royal Society for the encouragement of Arts, Manufactures & Commerce
|May 1993-May 2002||Founder member of "The Guardian" Economics Advisory Panel
|November 1998-March 2001||Member of "Sunday Business" "Real World Monetary Policy Committee"