Treasury Committee Questionnaire completed
by Sir Andrew Large
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?
I am in the process of putting my financial
affairs at arm's length, to ensure I have no conflicts.
2. Are there any relevant personal or other
factors of which the Treasury Committee should be aware in considering
None other than on my CVI would be happy
to expand on this if it would be of assistance.
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
the MPC and as Deputy Governor responsible for financial stability.
Member of MPC
My jobs in both the private and public sectors have
required an understanding of financial trends and the factors
giving rise to them, including the implications of policy decisions.
This applied as a banker, whether in advising business customers
or managing the bank's affairs. It also applied as a regulator
and member of the Board of Banking Supervision.
In addition to the above, I have also taken
an active role in seeking improvements in financial architecture,
for instance in chairing the G30 project on (cross border) clearing
and settlement, in my membership of the IMF Capital Market Consultative
Group, in chairing Euroclear, and in my membership of the Institute
of International Finance Steering Committee on Capital Adequacy.
These areas all raise questions of public policy in relation to
financial stability. In addition to the above, I read economics
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 support the principle of ex post accountability
in all areas of public policy making. This was certainly the case
whilst I chaired the SIB and I would expect it to be similar whilst
at the Bank of England. Being able to explain the basis on which
public policy decisions are made is an important ingredient of
transparency in our democratic society. It is too early to comment
on whether the procedures could be improved, but they seem to
be working relatively well and the MPC process seems to be held
in good regard.
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?
First, the success of the MPC as a whole in
achieving the objectives set for it; and, second, my own contribution
in assisting that process. This could include my voting record,
but also my contribution in terms of offering analysis or points
of view which could be seen to have assisted the process.
C. MONETARY POLICY
7. Is the framework of an explicit inflation
target the best within which to conduct monetary policy?
In a pragmatic sense, and as an observer, it
certainly seems to be working satisfactorily. Clearly, having
a single, easily-understood and symmetric target is of value both
in itself and in shaping expectations and their implications within
8. Is it appropriate to concentrate on the
projection of RPI(X) at the two-years ahead point?
There is bound to be a lag in the impact of
interest rate movements on the economy as a wholehence
the significance of the inflation outlook. I would like more time
before forming a view as to whether two years is the best horizon
to consider; and indeed I believe one needs to look at the likely
impact at intermediate and subsequent points of time as well.
9. Do you believe that there is any trade-off
between inflation and unemployment (or output) in the short-run
or in the long-run?
In the short term, I can see that there will
often be a trade off. Higher interest rates can affect decisions
of employers with respect to future personnel requirements and
capital expenditures, for example. In the long run, it is harder
to say, though I see any trade off as being far less likely. Empirical
evidence in the UK in the 1960s did show some correlation, but
that relationship subsequently broke down. Nor does there seem
to be any consistent relationship across countries. In the EU,
for example, we see low inflation with higher rates of unemployment,
whilst in Japan we see lowor negativeinflation and
generally rising unemployment. Clearly other factors are at work
that make any mechanical connection unlikely.
10. 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?
Monetary policy clearly needs to keep imbalances
under close scrutiny and take them into account in its decision
making with respect to stability of inflation. However, the main
contribution that it can make in the medium term is to provide
stability in one key variableinflationwhich shapes
expectations and the behaviour of consumers, investors and employers.
This can provide a valuable background against which policy initiatives
in other areas can be determined and their results judged. However
on its own, monetary policy cannot redress imbalances, whether
of strong consumer spending and weak saving, or of service sector
performance outstripping that of manufacturing.
A great number of other factors, many of them
structural, come into play here including labour mobility, educational
standards, tax distortions and the exchange rate to name but a
few. These can indeed have an impact on growth, and need to be
taken into account when looking at the likely course of inflation.
11. What is your assessment of the outlook
for UK productivity growth?
I am aware of the conundrum that productivity
growth in the UK has been lower than anticipated or desiredparticularly
in relation to that in the USA (where however I believe official
statistics have been revised downwards). The rate of productivity
improvement has been particularly disappointing in manufacturing.
The future is difficult to predict. The promised gains from the
IT revolution are in my view probable, and indeed empirically
in various work environments they have been plain to see. But
there is considerable uncertainty about how long it will take
to see an improvement in the aggregate data. At the time of the
invention of other key technologies, such as the electric dynamo
or the printing press, it would have been equally difficult to
predict the longer term consequences.
12. What consideration should be given to
asset prices, including house prices and the exchange rate, within
the framework of inflation targeting? Would your opinion differ
if you identified an asset price bubble?
The main consideration is the impact on consumer
behaviour and industrial behaviour:
Asset Prices. The sustained rise
in house prices affects consumer behaviour, for example by encouraging
a feel good factor. The question is what factors could cause house
price rises to slow and what impact would that have on consumer
demand, and consequently on the inflation outlook. This is an
area for MPC judgement. Similarly the reasons for, and impact
of, changes in the exchange rate require careful analysis and
Bubbles. Almost by definition that
which is a bubble will in time collapsewhether the market
for tulip bulbs, for IT stocks or for investment bankers. Complications
arise in two dimensions. Firstly, recognising what is a bubble,
since external changes can cause traditional indicators to be
unreliable. Secondly, identifying the behavioural dynamicsboth
those that cause the collapse, and those which might arise from
it. All these factors are relevant to policy formation in relation
to inflation targeting and require careful judgement.
13. What problems do the current strength
of the housing market and increasing levels of household indebtedness
present for monetary policy and financial stability?
The first problem is that, in looking at the
inflation outlook as a whole, one needs to determine what weight
should one give to specific factors such as housing market strength
and household indebtedness. Secondly, in relation to indebtedness
the existence of a low inflation, low interest rate environment
may make higher levels of indebtedness more sustainable. So the
challenge placed on monetary policy is to ensure such an environment
As for the issues raised for financial stability,
clearly high levels of indebtedness in relation to housing as
elsewhere have implications for the banking system. Banks have
made great efforts to improve risk management techniques over
the last 15 to 20 years. However, this is an area needing constant
vigilance, since competitive pressures for banks to lend have
to be balanced by a judicious and reliable appraisal of risks
in a constantly changing environment.
14. What issues arise for financial stability
in an environment of low inflation, for example, in relation to
the persistence of the real value of debt?
In a general sense, low inflation should make
a substantial contribution to financial stability, by reducing
uncertainty, dampening balance sheet fluctuations, and increasing
price transparency. What can cause difficulties is when expectations
in relation to inflation change. For example, people taking out
a high level of debt in a high inflation period, expecting part
of the real value of the principal to be inflated away before
they come to repay it, may find themselves facing a higher real
debt burden than they had initially expected. Inflation however
has now been relatively low and stable in the UK for some time,
so the scale of this problem is likely to have fallen quite considerably.
But clearly the extent to which expectations are aligned with
the inflation target will remain a key issue looking forward,
and this is something I will want to familiarise myself with.
15. What role should econometric and other
models play in the formulation of interest rate policy?
As with models in all areas, they have a legitimate
and useful role in helping to judge the movement of a given variable
by factoring in expected (modelled) changes in other variables
in the light of experience. However in my view all models have
their limitsfirstly they are only as good as the indicators
used and interrelationships factored into the model itself, and
secondly it is important that users of models can judge under
what circumstances the model should be modified or indeed overruled.
In the banking business models are increasingly
used, and I have often worried that there is a danger that an
overly mechanical use of models can give a sense of false security.
In turn this could obviate or reduce the willingness or ability
of the users of models to exercise judgement to ignore or overrule
them when needed.
|2002-||Bank of EnglandDeputy Governor (Financial Stability)
|2000-||Chairman of the G30 Project on Clearing and Settlement
|2000-2002||Member IMF Capital Markets Consultative Group
|1998-2002||Barclays PLC, Deputy Chairman
|1998-||Euroclear: Chairman 1998-2000; subsequently Director Emeritus
|1998-2001||Institute of International FinanceMember of the Board
|1992-1997||Securities and Investments BoardChairman
|1996-1997||Member of the Board of Banking Supervision
|1992-1997||International Organisation of Securities Commissions (IOSCO)Member of the Board (Chairman 1992)
|1992-1993||Lloyd'sMember of the Council
|1991-1992||London FOX (now London Commodity Exchange)Chairman
|1990-1992||Large, Smith & Walter (Strategic Consultancy)Co-Founder
|1987-1988||Member of the Panel on Takeovers and Mergers
|1986-1987||Member of the Council of UK Stock Exchange
|1986-1987||The Securities Association (Chairman)
|1980-1989||Swiss Bank Corporation (Member of Management Board from 1987)
|1971-1979||Orion Bank (to Managing Director)
Other Non-Executive plc Board Positions:
|1991-1996||English China Clays PLC
|1991-1992||Dowty Group PLC
|1990-1992||Rank Hovis McDougall PLC
|1990-1994||Nuclear Electric PLC
|1961-1964||Corpus Christi, CambridgeMA (Hons) Economics
|2002-||Hungarian Financial Supervisory AuthorityAdvisory Board Member
|1998-||Board Member INSEAD, Fontainebleau
|1998-||Governor Winchester College
|1998-||Governor Christ College, Brecon
|Aged 60, married with three children|