an assessment of labour s record on income inequality and poverty we document the evolution of average incomes poverty and inequality over the period of labour government from 1997 to 2010 comparing these trends with those seen over other periods in recent history we also relate these changes to labour s stated distributional objectives which we argue were clear in relation to the bottom of the income distribution and absolutely explicit in relation to child poverty but much less clear in relation to inequality more generally it is thus perhaps no surprise that we observe substantial falls in child and pensioner poverty alongside increases in overall income inequality with the latter largely driven by growth in top incomes we also use micro simulation techniques to demonstrate the crucial importance of direct tax and benefit reforms in driving the changes observed over this period copyright 2013 oxford university press

natural resources and sub national economic performance does sub national democracy matter abstract the differentiation in the impact of resources on economic growth is often explained by the specifics of institutional factors the aim of this paper is to investigate how sub national political differences influence the effect of natural resources on economic growth using a dataset of russian regions this paper demonstrates that sub national democratization influences the growth effects of resources and considers possible mechanisms for this influence the paper finds that in russia natural resources are only capable of promoting growth in the regions with non democratic political systems that at the same time have an efficient and non corrupt bureaucracy

corruption trade and resource conversion abstract recent evidence suggests that special interest groups significantly affect tropical deforestation through lobbying we develop an open economy model in which resource conversion is determined by a self interested government that is susceptible to the influences of the political contributions it receives from the profit maximizing economic agent responsible for land conversion we investigate the effects of lobbying on the cumulative level of resource conversion and examine how trade policy influences the distortions created by political corruption we derive testable predictions that are analyzed through a panel analysis of cumulative agricultural land expansion over 1960 99 for low and middle income tropical countries our findings suggest that increased corruption and resource dependency directly promote land conversion whereas rising terms of trade reduce conversion

the secular inflation term in open economy phillips curves abstract robert flood has compared three alternative specifications for the secular inflation term in an open economy phillips curve attributed respectively to buiter miller and frankel and mussa we point out 1 an arithmetic error 2 the equivalence of the frankel and mussa versions and 3 some arguments against the buiter miller version

unemployment labor market reform and monetary union monetary union such as the economic and monetary union in europe emu may affect incentives for labor market reform and thus equilibrium unemployment through several mechanisms if an inflation bias exists there is usually a stronger incentive to reduce equilibrium unemployment through national reform outside rather than inside the emu absent such a bias emu membership could lead to more reform one reason is that reform may increase wage flexibility which can substitute for monetary policy in the emu another reason could be a precautionary motive for low equilibrium unemployment to reduce the utility cost of increased macroeconomic variability in the emu

do informal institutions matter for technological change in russia the impact of communist norms and conventions 1998 2004 summary we explore the impact of informal institutions on technological change in transition comparing the 89 regions of the russian federation we use panel data during the period of recovery and growth 1998 2004 the one country framework provides a constant background unlike for example in cross country studies against which variance in institution building may be observed property rights reform ranged from full enforcement in the northwest to blocking in communist regions in the southeast we find an unambiguous relationship between early strong reform and technological change in our model the quality of informal institutions is proxied by investment risk expertra regions rating agency

money and economic activity inventories and business cycles abstract incomplete information is a necessary condition for any real effects produced by monetary impulses an alternative to the local global inference problem is explored in this paper agents are confronted with permanent and transitory shocks even with full knowledge about the stochastic structure their best perception at any particular time will usually be erroneous prices for each period are set at the beginning of the period on the basis of market conditions the realization of the shock process thus creates a short run disequilibrium absorbed by inventory adjustments this adjustment translates perceived transitory monetary shocks into serially correlated output movements the analysis proceeds within the context of rational expectations it offers a generalization of equilibrium analysis in two respects prices are always in equilibrium relative to perceived conditions but they do not reflect all ongoing shocks quantity adjustments reflect the perceived transitory shocks the framework used involves moreover a stock flow interaction operated by inventory adjustments the stock flow interaction imposes at any time a future expected adjustment path for price level and quantities to the system s unique stock equilibrium a major implication of the analysis resolves a puzzle experienced in a recent paper by robert hall it reconciles intertemporal substitution with lagged effects of monetary impulses it also reconciles small and inconclusive cyclic movements in real wages with the occurrence of production function and large variations in unemployment lastly the nature of the inference problem determined by the pattern of incomplete information produces serially correlated movements conditioned on large permanent shocks

the effect of democracy and press freedom on corruption an empirical test this paper tests the effect of democracy and press freedom on corruption the empirical investigation carried out in this paper suggests that democracy and press freedom can have significant impact on corruption

monetary policy under the labour government the first 13 years of the mpc this paper examines the performance of monetary policy under the new framework established in 1997 up to the end of the labour government in may 2010 performance was relatively good in the years before the crisis but much weaker from 2008 the new framework largely neglected open economy issues while the treasury s emu assessment in 2003 can be interpreted in different ways the new framework may have contributed to some extent to the eruption and depth of the financial crisis from 2008 but mon etary policy eventually responded in a bold and innovative way overall the design and operation of mon etary policy were much better than in earlier periods but there is room for significant further evolution

political credit cycles the case of the euro zone we study the mechanisms through which the adoption of the euro delayed rather than advanced economic reforms in the euro zone periphery and led to the deterioration of important institutions in these countries we show that the abandonment of the reform process and the institutional deterioration in turn not only reduced their growth prospects but also fed back into financial conditions prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident we analyze empirically the interrelation between the financial boom and the reform process in greece spain ireland and portugal and by way of contrast in germany a country that did experience a reform process after the creation of the euro

optimal monetary policy in a currency area abstract this paper investigates how monetary policy should be conducted in a two region general equilibrium model with monopolistic competition and price stickiness this framework delivers a simple welfare criterion based on the utility of the consumers that can be used to evaluate monetary policy in a currency area if the two regions share the same degree of nominal rigidity the terms of trade are completely insulated from monetary policy and the optimal outcome is obtained by targeting a weighted average of the regional inflation rates these weights coincide with the economic sizes of the region if the degrees of rigidity are different the optimal plan implies a high degree of inertia in the inflation rate but an inflation targeting policy in which higher weight is given to the inflation in the region with higher degree of nominal rigidity is nearly optimal

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

wage inequality in the labour years this paper studies changes in labour market inequality in the uk with particular reference to what happened to wage inequality during the years of labour government the analysis uses micro data through time to document what happened to overall wage inequality as well as upper and lower tail wage inequality relative to what went before simple supply and demand models of changing wage differentials by education group are used so as to consider the drivers of relative demand shifts in favour of the more educated that underpin rising wage inequality the changing role of labour market institutions is also discussed and in particular the decline of unionization and the importance of the introduction of the national minimum wage in 1999 for the evolution of lower tail wage inequality

governance and timber harvests resource economics theory implies that risks associated with weak governance have an ambiguous impact on extraction with the net impact depending on the relative strengths of depletion and investment effects previous empirical studies have found that improved governance tends to reduce deforestation but to raise oil production here we present evidence that the marginal impact of improved governance on timber harvests in developing countries during 1984 2006 was nonmonotonic it tended to raise harvests in countries with weaker governance but to reduce harvests in countries with stronger governance this nonmonotonic impact occurred for both an index of governmental integrity corruption bureaucracy quality law and order and an index of governmental stability a simulation of hypothetical increases in these governance indices to the maximum 2006 values observed in the sample predicted that improved governance would reduce harvests in most countries but could raise harvests in some with large increases occurring in countries with the weakest governance

reliability of policy announcements and the effects of monetary policy abstract monetary authorities regularly announce targets for monetary growth but the market may not completely trust these announcements because they may not always be truthful hence the market does not have perfect knowledge about future monetary policy and must form its expectations on the basis of information it can extract from the announcements and its observations of the actual money supply this paper asks how the macroeconomic effect of monetary policy might be altered by more reliable policy announcements in the setting of a medium sized open economy it is found that contrary to the full information case a reduction in monetary growth of 1 may lead on impact to a reduction in inflation of much less than 1 if the announcements are not very credible the output costs of lowering inflation are smaller both in the short run and the long run the more reliable the announcements however the plausibility of announcements does not affect the output loss for a given appreciation of the currency fluctuations in the exchange rate that are attributable to monetary disturbances beyond the policy makers control can nonetheless be dampened by making announcements that are more highly correlated with the truth

tenure security investment and productivity in gambian agriculture a generalized probit analysis the determinants of investment input use and productivity are investigated under customary tenure in peri urban areas of the gambia a structural model is specified to investigate the role of tenure security on farm investments and input use and thereby on yield testing of the structural form hypotheses requires simultaneous equation estimation containing both continuous and discrete endogenous variables the model is estimated as a feasible generalized least squares amemiya s generalized probit some of the positive relationships hypothesized between tenure security investment and yields are corroborated in particular tenure security is found to enhance long term investments which in turn enhance yields

productivity under the 1997 2010 labour government what was the productivity record under the labour government of 1997 2010 i show that productivity growth and economic performance in general was good when the uk is compared with its main international peers only the us had stronger productivity growth and the uk did better than the us in terms of the jobs market much of this improved performance was a continuation of the pattern since 1979 which broke a century of relative decline some part of the improvement is directly linked to policies especially over human capital innovation and competition we discuss the recent productivity puzzle the disappointing productivity figures since the onset of the great recession in 2008 and argue that our conclusions are unchanged as most other oecd countries have also experienced poor measured productivity

examining asymmetries in the transmission of monetary policy in the euro area evidence from a mixed cross section global var model abstract i estimate the transmission of a common euro area monetary policy shock across individual euro area economies to do so i develop a global var model in which all euro area economies are included individually while at the same time their common monetary policy is modelled as a function of euro area aggregate output growth and inflation the results suggest that the transmission of monetary policy across euro area economies displays asymmetries and that in line with economic theory these are driven by differences in economies structural characteristics in particular euro area economies in which a higher share of aggregate output is accounted for by sectors servicing interest rate sensitive demand exhibit a stronger transmission of monetary policy to real activity similarly even though the evidence is less conclusive euro area economies which feature more real wage and or fewer unemployment rigidities also appear to display a stronger transmission of monetary policy to real activity

aggregate fiscal policy under the labour government 1997 2010 this paper explores the labour government s fiscal policy performance at the macroeco nomic level this analysis is in two halves the first covers the period up until the great recession which involved a single policy regime subject to two simple fiscal rules after discussing the theoreti cal and practical issues raised by these rules i examine the extent to which they were followed by the government and whether subsequent developments highlighted shortcomings of these rules to what extent was the eventual failure of these rules down to over optimistic forecasts or unforeseeable events the second half involves the response to the great recession and the abandonment of the fiscal rules

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

ppp and pfi the political economy of building public infrastructure and delivering services the labour government of 1997 2010 used various forms of public private partnership ppp to build schools hospitals prisons and diverse other items of infrastructure drawing in sub stantial private capital it also out sourced many public services to private providers this paper starts by reviewing the scale of these activities and the forms of private sector engagement that were involved it then considers the political economy of these forms of privatization to understand why and how these methods came to be chosen including considering what might have happened without private sector involvement the effectiveness of ppp and the private finance initiative pfi in terms of delivering government objectives and providing infrastructure and services efficiently are examined taking account of private sector returns on capital implications for public spending including future deficits and debt the treatment of risk the provision of incentives to deliver projects to cost and on time and various other issues the paper concludes by assessing how far the labour government s ppp and pfi programmes can be regarded as successful and according to what criteria

the macroeconomic role of fiscal policy this article examines the new consensus that fiscal policy should have no macroeconomic role in flexible inflation targeting regimes there is little basis for this presumption fiscal policy remains important in setting the policy mix and in managing shocks and imbalances the credibility of an inflation targeting regime should be enhanced rather than reduced if fiscal policy plays its proper role it is true nevertheless that the costs of focusing fiscal policy narrowly on public sector concerns may not be very great most of the time however when interest rates cannot be used the role of fiscal policy must be different with interest rates at their lower bound of zero there is no plausible alternative for asymmetric shocks and adjustments in emu fiscal policy needs ideally to substitute for the interest rate policy reaction function of the consensus but the difficulties are very great we suggest a policy focus on real exchange rates as a way of resolving some of the dilemmas there is a serious danger that orthodox views about fiscal policy drawn from the consensus will be inappropriately applied especially in europe copyright 2005 oxford university press

should central banks target consumer prices or the exchange rate in this article we consider two arguments suggesting that monetary authorities in an open economy should target output price inflation and not consumer price inflation the first suggests that output price inflation corresponds to the distortions caused by price rigidity the second shows how policy rules involving consumer price inflation can induce instability because of the feedback from interest rates to consumer price inflation via the exchange rate we examine both arguments in the context of an open economy which is subject to a range of shocks we show that both arguments remain robust but that there is a case for including a terms of trade or real exchange rate gap term in the authorities welfare function alongside the output gap and output price inflation

whence exchange rate overshooting money stock or flow abstract money stock innovations have two principal impact effects on the exchange rate one is the direct effect as captured by the overshooting hypothesis the second is the result of the change in money growth rate expectations induced by the stock innovation simulations using a stylized monetary process verify that the front end loading of the growth rate effect is potentially much more important that the direct effect additional simulations using a calibrated monetary process demonstrate that growth rate effects are on average about twice the magnitude of stock innovation effects

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

the economic record of the 1997 2010 labour government an assessment we consider the economic record of the 1997 2010 labour government in the uk following a brief review of the government s inheritance from its predecessor we review the assessments made in the other papers in this issue of the oxford review of economic policy the change in the macroeconomic policy framework which apparently worked well for a decade but was then struck by the global financial crisis labour market social security and education policies and inequality public investment and public service delivery especially health and corporate taxation we discuss the constraints under which the government operated how much it broke with the past and the new frameworks it introduced we identify strengths and weaknesses and draw lessons from the government s record about the need to remain receptive to other and critical ideas on the one hand and the need for labour to spell out the kind of economy and society it wants to see develop on the other copyright 2013 oxford university press

ownership risk investment and the use of natural resources the effect of insecure ownership on ordinary investment and natural resource use is examined insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability the political determinants of economy wide investment are estimated from cross country data and the results are used to form an index of ownership security when introduced into empirical models of natural resource use this index has a significant and quantitatively important effect on the use of forests and petroleum contrary to conventional wisdom ownership risk slows resource use in some circumstances

on the gains of committing to inefficient production lobbying and low land productivity in latin america abstract we present a new explanation and empirical evidence showing that rural subsidies to large farmers tend to be associated with low land productivity and excessive deforestation we develop a lobbying model where wealthy farmers trade bribes or political contributions to government politicians in exchange for subsidies farmers are able to tilt the terms of the bargaining game with policy makers in their favor by pre committing to an inefficient choice of semi fixed inputs government proneness to accept political contributions or bribes and its willingness to provide subsidies cause farmers to adopt inefficient modes of production as a mechanism to capture such subsidies our predictions are consistent with stylized facts on land use in latin america and suggest that subsidy schemes have been counterproductive distorting and constraining development and triggering excessive depletion of natural resources we validate some of the predictions of the model through econometric analyses using a new data set for nine countries in latin america

labour s record on financial regulation in 1997 the new labour government launched major initiatives in the area of financial regulation setting up the financial services authority as a comprehensive regulatory body supported by the legislative framework of the financial services and markets act 2000 we evaluate the labour government s record on financial regulation in terms of its achievements and failures especially in dealing with the global financial crisis that started in 2007 while we identify some clear flaws in regulatory design and enforcement our evaluation highlights some inherent difficulties of financial regulation

the effect of the discount rate on depletion of exhaustible resources this paper argues that despite its widespread acceptance in the literature the basic proposition that a reduction an increase in the discount rate leads to greater conservation faster depletion of an exhaustible resource is not generally valid it shows that the effect of the discount rate on the rate of resource depletion depends on capital requirements for production of the substitute and extraction of the resource and on the size of the resource stock in fact it shows that there always exist at least two ranges of the resource stock size for which the effect is opposite to that conventionally believed

political foundations of the resource curse in this paper we argue that the political incentives that resource endowments generate are the key to understanding whether or not they are a curse we show 1 politicians tend to over extract natural resources relative to the efficient extraction path because they discount the future too much and 2 resource booms improve the efficiency of the extraction path however 3 resource booms by raising the value of being in power and by providing politicians with more resources which they can use to influence the outcome of elections increase resource misallocation in the rest of the economy 4 the overall impact of resource booms on the economy depends critically on institutions since these determine the extent to which political incentives map into policy outcomes countries with institutions that promote accountability and state competence will tend to benefit from resource booms since these institutions ameliorate the perverse political incentives that such booms create countries without such institutions however may suffer from a resource curse

the worldwide governance indicators six one or none abstract aggregate indexes of the quality of governance covering large samples of countries have become popular in comparative political analysis few studies examine the validity or reliability of these indexes to partially fill this gap this study uses factor confirmatory factor and path analysis to test both measurement and causal models of the six worldwide governance indicators they purportedly measure distinct concepts of control of corruption rule of law government effectiveness rule quality political stability and voice and accountability rather than distinguishing among aspects of the quality of governance we find that they appear to be measuring the same broad concept

the effect of decentralized governance on timber extraction in european russia good governance is often promoted for economic growth but its impact on natural resource use in developing and transitional economies is not well understood for example many scholars promote improved governance as a means to slow resource use whereas others have found that better governance increases extractive resource activities in this paper we use within country variation in russia to test the impact of governance on timber harvesting using a reduced form fixed effects model and satellite based estimates of forest cover we find a statistically significant and non linear effect of governance on the area of timber harvested for a marginal improvement in governance timber harvesting increases but this effect decreases at high levels of governance these results are robust to alternative specifications and when instrumenting for economic growth governance could impact timber harvesting in russia through ownership risk i e tenure security through the costs of doing business i e bribes or both nonparametric regressions and qualitative evidence suggest that both factors are at play in russia this analysis provides additional evidence that improving governance may increase natural resource extraction this has important implications for policy prescriptions that suggest good governance will slow resource use in developing and transitional economies

a model of exchange rate dynamics this model treats the exchange rate as an asset price that depends on expectations concerning exogenous real and monetary factors that will affect relative prices and absolute price levels in future periods changes in exchange rates reflect both expected changes in these exogenous factors and changes in expectations occasioned by new information the model explains the random component in exchange rate behavior the source of divergences from purchasing power parity the anticipatory response of exchange rates to future expected disturbances and the causes of exchange rate overshooting

the cross country impact of ecb policies asymmetries in asymmetries out abstract since its inception the adequacy of the eurozone to be an optimal currency area has been questioned and along with it the homogeneous transmission and impact of the monetary impulses across the member countries we provide a comprehensive assessment of the transmission mechanism s functioning its symmetry impact on target variables and evolution addressing all the questions which have remained unanswered in the previous literature while adding evidence on the impact of non standard policy measures we do so by adopting a bayesian time varying parameters favar model that fixes the flaws present in past research the empirical analysis shows that the occurrence of the two crises significantly altered policy transmission with both the interest rate and credit channel being consistently affected it also shows that while they provided effective stimuli to the economies the unconventional measures implemented were not able to fix those asymmetries policy wise our findings suggest that authorities must push towards consistent innovation on the fiscal side while gaining more confidence with regards to the new monetary toolkit

an assessment of labour s record on health and healthcare this paper examines the record of the 1997 2010 labour administration on health and healthcare it begins by outlining the policies adopted by the administration with respect to the delivery of healthcare services and population health it then presents a two part assessment in the first part we examine the performance of the administration with respect to improvements in healthcare and population health in the second part we examine the healthcare policy record copyright 2013 oxford university press

real exchange rate overshooting and the output cost of bringing down inflation implementing a gradualist policy of monetary contraction in an open economy with a freely floating exchange rate but with nominal inertia in domestic labor costs can lead to prompt and substantial changes in the nominal and real exchange rate one of the virtues claimed for such exchange rate overshooting however is its immediate effect on the price level and so on domestic wage and price inflation in this paper we show that in a model which is super neutral and has nominal inertia in both the level of labor costs and their trend or core rate of growth this early overshooting of the exchange rate does not succeed in cutting the output costs of reducing steady state inflation those output and unemployment costs which are initially avoided by over valuing the currency have to be paid later when this overvaluation is corrected relative to other policies which achieve the same effect on steady state inflation exchange rate overshooting brings inflation down more quickly this abstract was borrowed from another version of this item

education under new labour 1997 2010 this article reviews the evidence on new labour s educational achievements it focuses on those aspects of policy that labour itself highlighted in its manifestos such as the raising of educational standards a major issue particularly on the issue of standards is the methodological weaknesses of the statistics used no firm conclusion can be drawn on whether standards rose or not they probably merely kept pace with those in other countries however labour clearly put more resources into education than the previous conservative administrations had done there is also evidence of increased participation in post compulsory 16 18 education and labour policies probably contributed towards this there is also evidence of narrowing inequalities in achievement at the end of compulsory schooling conversely the introduction of fees for he do not appear to have made inequalities worse on balance then education represents a modest success for new labour although the biggest story is really the over claiming from both sides about their respective successes and failures and the poor quality and lack of commensurability over time of the statistical data

monetary policy under emu this paper considers a number of issues connected with the implementation of monetary policy in the euro zone these include the techniques of monetary control whether to adopt an explicit inflation target and if so for what index the politics of decision making within the governing council of the european system of central banks the likelihood of there being conflicts of interest between the member countries of the euro zone the interaction of monetary and fiscal policy and the role of the escb in maintaining financial stability copyright 1998 by oxford university press