(Bloomberg) -- The UK Treasury named Alan Taylor to the Bank of England’s interest-rate-setting committee at a crucial moment when officials are trying to gauge how how quickly to reduce borrowing costs.
Taylor will serve a three-year term as an external official starting on Sept. 2, replacing hawkish policy maker Jonathan Haskel, according to a statement released Friday.
Taylor has co-written publications warning about the long-term effects of tight monetary policy, a possible indication he might be more willing to cut the benchmark lending rate than his predecessor. However, the papers also cautioned about risks from policy being too loose for long periods.
The appointment may be crucial to the balance of hawks and doves on the nine-member Monetary Policy Committee, which was divided over whether to cut interest rates at its meeting earlier this month.
It voted 5-4 for a quarter-point cut from a 16-year high, with Governor Andrew Bailey casting the deciding vote. Haskel was among the dissenting voters backing no change in policy. That suggests Taylor’s appointment may tip the BOE in a more dovish direction.
Taylor is currently a professor of international and public affairs at Columbia University in New York. He was a visiting scholar at the BOE and has served as a senior adviser at Morgan Stanley, Pimco and McKinsey.
While Taylor has not specifically commented on the direction of rates recently, his previous research provides some hints that he may be less hawkish than his predecessor.
A paper co-written by Taylor warned that tight monetary policy can reduce the economy’s potential output for over a decade.
“Our results suggest that a challenge for monetary policy is that, in addition to the effects on current economic activity, variations in policy rates can have unintended lingering effects on potential growth,” said the publication, which was co-written with Oscar Jorda and Sanjay Singh. This may “ultimately complicate the calibration of policy.”
However, they also found that “loose monetary policy does not appear to raise long-run potential.”
Another paper co-written by Taylor suggested that he also saw risks with central bank policy being too loose for long periods.
“We find that when the stance of monetary policy is accommodative over an extended period, the likelihood of financial turmoil down the road increases considerably,” said the paper, which was written with Jorda, Maximilian Grimm and Moritz Schularick.
Taylor will be in place in time for the next BOE meeting on Sept. 19 despite the appointment process being delayed by the election campaign.
“This is an important time for the committee, and we will no doubt benefit from Alan’s contributions to our debates,” Bailey said. He added that Taylor brings “with him his extensive knowledge and experience from his career in academia.”
(Updates with details on Taylor’s background)
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