bluuebunny/crossref_metadata_2025 huggingface dataset:
The Assessment of Optimistic Self‐beliefs: Comparison of the German, Spanish, and Chinese Versions of the General Self‐efficacy Scale
Authors: Schwarzer Ralf , Bäßler Judith , Kwiatek Patricia , Schröder Kerstin , Zhang Jian Xin
Published: January 2008

L'auto‐efficacité générale est mesurée grâce à une courte échelle composée de dix items. Son usage est très répandu et elle a été adaptée à plusieurs cultures. Cet article compare des versions qui ont été proposées à des étudiants: 430 Allemands, 952 Costariciens et 293 Chinois. lies validités internes sont respectivement de.84,.81 et.91. L'unidimensionnalité de l'échelle est réapparue dans tous les échantillons. L'équivalence items‐modèle interlinguistique ne fut que modérément approuvé par des analyses factorielles de confirmation. On a trouvé des différences au niveau des moyennes des scores totaux entre les langues. De plus, une intéraction entre sexe et langue s'est manifestée. Des corrélations avec la dépression, l'anxiété' et l'optimisme ont fourni des éléments complémentaires en faveur de la validité de construction.

General self‐efficacy is measured by a widely used parsimonious ten‐item scale that was developed for use in several cultures. The present paper compares the verions that were examined in samples of 430 German, 959 Costa Rican, and 293 Chinese university students. The internal consistencies were.84,.81, and.91, respectively. The unidimensional nature of the scale was replicated in all samples. Multilingual item‐pattern equivalence was only moderately supported by confirmatory factor analyses. Mean differences of sum scores between languages were found. Moreover, an interaction between gender and language emerged. Correlations with depression, anxiety, and optimism provided some further evidence for construct validity.
Forecasting the Real Exchange Rate
Authors: BURNS T. , LOBBAN P.W.M. , WARBURTON P.
Published: January 2008

This brief examines the historical relationship between exchange rates and relative inflation rates for a group of major industrial countries. It establishes the concept of the ‘real exchange rate’ and the ‘productivity‐adjusted real exchange rate’ (PARE) as essential in understanding these relationships and projecting them into the future. It puts the discussion into the context of company decision making, as one important factor in the rate of return likely to accrue from different methods of supplying an overseas market.

Differences in productivity between countries explain the divergences in prices of ‘non‐traded goods’. To give a simple example, a haircut costs much more in New York than in Madrid since high US wages reflect high productivity which does not apply in many parts of the service sector. These differences rule out the acceptance of the over simple ‘purchasing power parity’ approach which assumes that exchange rates will settle at a point where all prices (in terms of a common currency) are the same everywhere, or move together. Even after account has been taken of differences in productivity growth, productivity‐adjusted real exchange rates (PARE) ‐ though reasonably stable ‐ can still show some deviations, or ‘blips’. The ‘blip’ may occur because of rapid changes in the actual exchange rate or in domestic prices, in which case it is likely to prove temporary and the PARE rate will tend to adjust back to its normal level. But it may come from major structural changes, in which case PARE will be altered permanently within definable limits. A way of recognising the different categories of ‘blip’ is suggested in the brief.

The PARE framework is then used to provide a guide to UK businesses who are concerned to calculate the future sterling value of foreign currency sales or, more generally, to estimate their competitiveness in supplying specific export markets. (The method used would apply equally well to other countries.) This is done by showing step‐by‐step the forecasting procedure to compute sterling's effective exchange rate to 1981 on assumptions concerning respective rates of inflation, monetary policy and the impact of North Sea oil. The computation shows that a sustained period of exchange rate stability is possible for the UK, even if UK inflation rates remain significantly above the world level for the next two years.
WORLD OUTLOOK
Authors: Dicks Geoffrey
Published: January 2008

The sharp fall in world output which occurred in the middle of 1980 was halted in the fourth quarter when world industrial production rose 1–2 percent. We believe however that the recession has not yet run its come and that a further fall in output will occur in the first half of 1981. In particular we are sceptical that the recent recovery in the United States can be maintained while inflation remains in double figures. We are not looking for a sustainable world recovery until the middle of this year by which time OECD inflation should be well down into single figures.
The Recession of 1980 and its Causes*
Authors: BUDD ALAN , DICKS GEOFFREY , GOSLING TONY , ROBINSON BILL
Published: January 2008

During 1980 total output fell by 5% per cent and manufacturing output by 16 per cent. By May 1981 manufacturing output was 20 per cent below its 1979 peak level. in this Briefing Paper we use the London Business School model to explain the current recession. We conclude that the main identifiable came was the rise in the price of oil. but output was also affected by the increase in VAT and the reductions in public investment. Those cawes directly explain a reduction in output of about 3 per cent in 1980 compared with what might otherwise have happened. We suggest that additional links (not fully incorporated into the model) increased the impact of those shocks and led to the severe fall below potential output. The first part of the paper describes briefly the events of I979 and 1980. in the second part we ask how far the economic developments were predictable and in the third part we set out our explanations.
The London Business School with Gower Publishing
Authors: Dicks Geoffrey
Published: January 2008

Over the lastfive years events in the United States have been repeated throughout the OECD area, with a lag of 6–12 months. A repeat of this pattern in I982 would mean that the recovery in Europe and Japan, which has been progressing slowly since the middle of last year. would not last into 1983. The present forecast excludes this possibility. The argument, which we have put previously, is that the US recovety of 1980 was premature and that the current recession Jollows a renewed attempt by US policy‐makers to reduce inflation. There are already signs that they will be succes & Consequently we do not expect the US recession to be prolonged In the second haIfof the year we expect an expansion of output to be in progress, both in the US and elsewhere; in the next few months, however, world activity is likely to remain subdued.
Coping with oil price shocks ‐ the case of Japan
Authors: BUDD ALAN , DICKS GEOFFREY
Published: January 2008

The world economy has now suffered two major oil price shocks. Although the percentage increase in 1973‐74 (OPEC I) was much larger than in 1979‐80 (OPEC II). the potential effect on the level of world prices ‐ and hence on the real economy ‐ was about the same in each case. One lesson that was learned from OPEC I was that the impact of the oil price increase on individual economies depended on the policies followed by each country. For example, in the UK the inflation rate rose to 27 per cent in 1975 whereas in West Germany ‐ which was just as dependent on imported oil ‐ inflation rose to 7 per cent. In this Economic Viewpoint we consider the example of one country ‐ Japan ‐ which changed its policies between the two events. As a result it changed from being one of the least successful to being one of the most successful in coping with the oil price increase.
WORLD OUTLOOK
Authors: Dicks Geoffrey , Robinson Bill
Published: January 2008

At the end of 1982 output in the world economy was still falling, although there were signs that the decline had very nearly run its course. We expect a radual recovery to begin in the first half o f 1983. Unlike the recovery which began in the late summer of 1980, when inflation was still in double figures, any upturn in 1983 would be set against a background of declining inflationary expectations and weak oil prices. IJ. as we expect, a falling inflation rate proves a decisive factor in keeping interest rates on a downward path, we forecast that the output will gather pace in I983 and rise reasonably strongly in 1984. Of the 4 per cent rise in industrial production which we foresee in 1984. a large part is due to the fall in real oil prices.
Medium term Prospects for the UK economy
Authors: KEATING GILES
Published: January 2008

Prospects for the economy several years ahead are even more uncertain than projections of the near future. e overnment policy is currently particularly uncertain e iven that a general election is due to occur in the next 15 months. This article presents three ‘alternative scenarios’, one based on Conservative Party policies, the others on the spirit of Labour Party policies.

The first case described is our central forecast. It is a continuation of current Conservative Party policies. The second and third cases are based on our interpretation of Labour Party policies. These policies are assumed to involve widespread use of government intervention, planning, wage and import controls. Monetary targets are relaxed or abandoned. We consider two possible out comes of such policies. Under one outcome the policies are relatively successjul in boosting output and employment without greatly raising inflation. Under the other out comes, output is lower than on current policies and inflationt much higher.
ELECTION MANIFESTO POLICIES COMPARED
Authors: Keating Giles , Ellis Rob
Published: January 2008

In this Forecast Release we compare the likely outcomes of the economic policies proposed by the three main contenders in the General Election. The results of some Dolicies. such as Labour's import controh and exchannge controls and the Allianie incomes policy, aie particularly dificult to evaluate using a conventional model; even for Conservative policies which are similar to those pursued so far, there remains considerable uncertainty about their consequences in future years. We have therefore prepared two forecasts for each of the three parties. One of these forecasts assumes that their policies are broadly successful, the other assumes they are unsuccessful.
Economic Background to the Coal Dispute
Authors: ROBINSON BILL
Published: January 2008

This Briefing Paper attempts to explain the economic forces behind the decline of the coal industry. The main findings (presented in the order in which the argument is developed) are:

Coal output has been declining throughout this century. This decline accelerated in the 1950s and 1960s when coal was faced with competition from oil.

The decline was arrested by the the oil price increases of the 1970s which have allowed coal to establish and maintain a price advantage over alternative fuels. Despite this, coal has not increased its market share over the past decade.

Because of energy conservation, in response to the price increases of the 1970s, total energy demand has fallen over the past ten years.

With coal holding a stable share of a static market, the output projections for the industry drawn up in the 1970s including those in the 1974 “Plan for Coal” are now totally outdated.

Even if total energy demand were to expand, there would not necessarily be increased demand for British coal, which is more expensive to produce at the margin than alternative sources of supply (from the US, South Africa and Australia).

Home‐produced coal enjoys some natural protection from overseas competition because of high transport costs. In addition there is a tax on fuel oil and informal restrictions on imports. These partially insulate the domestic price of coal from changes in the world price.

The cost of producing coal has risen substantially in real terms since 1973‐4, despite a major investment programme. Productivity has risen slightly faster than the national average, but wages and non‐wage costs have risen very much faster.

The upward pressure on costs has come partly from the mineworkers' climb from twelfth to first or second place in the wages' league; and partly from the failure to close non‐economic pits fast enough.

This pressure on costs meant that by 1981‐2 less than half of the industry's total output was produced at profitable pits, which employed only 65,000 mineworkers.

There is a large tranche of marginally uneconomic pits which may be unprofitable one year but profitable another, and there is a strong case for keeping such pits open.

The number of pits which are profitable at the margin is very sensitive to movements in costs. I f mineworkers' wages had risen only in line with the national average for manufacturing over the period 1973‐4 to 1981‐2, the number of jobs in profitable pits would have been 95,000 rather than 65,000.

The subsidy per man in the most inefficient pit in 1981‐2 was of the order of £14000. The subsidy per man in the marginal pit at break‐even point for the industry as a whole was nearly £5000.

Under a cash limit system every pound spent on subsidising miners is a pound less available to spend elsewhere. Subsidising coal miners is a costly way of preserving jobs compared with alternatives.
Economic Viewpoint: The real wage debate
Authors: BUDD ALAN , DICKS GEOFFREY
Published: January 2008

Why is unemployment so high in Britain? Is it because demand is too weak or is it because real wages are too high? Many participants in the debate are trying to insist that it must be one or the other. In practice it is perfectly sensible to believe that both causes are involved, so that a fall in unemployment will require both a rise in demand and a fall in real wages. In this Economic Viewpoint we discuss the economic analysis involved; we investigate some of the relevant evidence and we explore some policy options.
Briefing Paper: The London Business School Model
Authors: HOLLY SEAN
Published: January 2008

In recent editions of Economic Outlook we have described how the London Business School model is used for forecasting and have also discussed ways of measuring the theoretical and actual degree of uncertainty in the forecasts. In this Briefing Paper we provide a general description of the current state of the model and report simulations that display some of its properties. This is a suitable time to provide such a description since the model has recently undergone a major expansion through the incorporation of a detailed model of the financial sector. Also the change in the official economic statistics from 1975 base prices to 1980 base prices required us to re‐estimate the complete model.
LOWER OIL PRICES AND THE UK ECONOMY
Authors: Corker Bob , Robinson Bill
Published: January 2008

Demand for oil remains weak, and OPEC production is running ahead of quota in most member countries, so the possibility that oil prices could fall in the near future has increased. In this Forecast Release we examine the medium‐term impact on the UK economy of lower oil prices. We find that, if the government does not intervene to protect the exchange rate, there is an immediate stimulus to output growth. The inflation rate, though, is 1–2 percentage points higher after three years.
Economic Viewpoint
Authors: ROBINSON BILL , KEATING GILES , SMYTH MICHAEL
Published: January 2008

The search for a policy device which will yield the benefits of monetary discipline without the pain is as old as it is fruitless, and the central message of this Economic Viewpoint is that going into the EMS will not provide a magic answer to our problems. However we believe that if we go into the EMS at today's rate, and pursue monetary policies consistent with maintaining that rate, the authorities' target of 3 per cent inflation by 1988 is well within reach… Our analysis of the experience of other countries, inside and outside the EMS, over the floating rate period suggests that membership of the EMS should also reduce exchange rate fluctuations and help to create a more stable environment for business planning. However, sterling's vulnerability to oil‐related fluctuations cannot be eliminated just by joining the EMS. We therefore suggest that an oil bond, which capitalises the value of our North Sea assets, is created and sold to our EMS partners, thus equalising the exposure to fluctuations in oil prices and removing one major cause of exchange rate instability.
Briefing Paper
Authors: HOLLY SEAN
Published: January 2008

The conventional post‐war wisdom was that unemployment was a consequence of inadequate economic growth, and economic growth was to be secured by macro‐economic policy. Inflation, by contrast, was increasingly seen as a matter to be dealt with by microeconomic policy ‐ the panoply of controls and subsidies associated with the era of incomes policy … But the proper role of each is precisely the opposite of that assigned to it by the conventional post‐war wisdom. It is the conquest of inflation, and not the pursuit of growth and employment, which is or should be the objective of macro‐economic policy. And it is the creation of conditions conducive to growth and employment… which is or should be the objective of micro‐economic policy.—Nigel Lawson, Fifth Mais Lecture, 1984.
THE AUTUMN STATEMENT
Authors: Budd Alan , Dicks Geoffrey
Published: January 2008

The Treasury's forecast, published with the Autumn Statement, has been widely heralded as showing a surprisingly cheerful picture for next year as far as both output and inflation are concerned. In fact it is close to the forecast which we produced in October. Here we compare the two forecasts and then consider how our forecast is affected when we adopt the Treasury assumptions on asset sales and the exchange rate. We find that the Treasury is more optimistic than we are on investment and that holding the exchange rate ‐ which is needed to produce the official inflation forecast ‐ requires rather higher interest rates than we assumed in October and this widens the gap between our forecast for GDP and the Treasury's forecast.

We also consider how the government should respond to lower North Sea oil revenues. Taking a permanent income approach, we suggest that the PSBR should be allowed to rise by £2bn on this basis. The same approach, however, suggests that an extra £71/2bn of asset sales should be used to cut the PSBR not taxes. On balance therefore this analysis indicates that next year's PSBR target should be lowered by £1/2bn from the £71/2 bn contained in the 1985 MTFS.
BARGAINING FOR LOWER INFLATION
Authors: Budd Alan
Published: January 2008

Industrialists are concerned about the high level of interest rates. The government is refusing to take deliberate steps to cut them, particularly at a time when the exchange rate has been falling in response to events in oil markets. However, the government has suggested that wage moderation offers the best chance of a fall in interest rates. Can this be interpreted as a promise of a reward for good behaviour?

The idea of a policy bargain, whereby the authorities promise some kind of fiscal or monetary stimulus as a reward for moderation in wage settlements, is not new. An explicit bargain of this type was offered by Mr Healey in 1976 and again in 1977. In each year he offered tax cuts contingent on the negotiation of a new pay policy. Some have interpreted Mr. Lawson's comments at the recent NEDC meeting as offering a similar type of bargain on interest rates. As far as we can tell, that interpretation is incorrect; there are however interesting and important questions about whether policy should respond to lower inflation.

We argue that, in general, lower inflation will itself produce favourable automatic responses for real demand within a nominal policy framework. The question of the effects of wage moderation is rather more complex. We believe that no policy adjustment is necessary. This also appears to be the government's view.
Economic Viewpoint: The Dangers of “Reaganomics”
Authors: ROBINSON BILL , DICKS GEOFFREY
Published: January 2008

After four years of steady output growth, and with the prospect of even faster growth this year, capacity constraints are emerging and inflation has doubled from the low point of May 1983. But unemployment has not fallen and some commentators are still calling for fiscal expansion. The ranks of the expansionists have been swollen by the signs of economic slowdown in the US, which have prompted the OECD to call for “an international configuration of policy‐settings conducive to a performance that is both sustainable and adequate”. The noted US‐based economist Rudiger Dornbusch has also called for a fiscal expansion worth about £5bn as part of a general plan to expand borrowing in Europe while the US cuts its deficit. The obvious objection to such a policy prescription is that it would be inflationary. However proponents of reflation are now careful to couch their expansionary fiscal policies in an anti‐inflation framework of tight monetary discipline.

In this Economic Viewpoint we take issue with this prescription. We show that there are good theoretical reasons why the combination of tight monetary policy and fiscal expansion will always produce high interest rates and an uncompetitive exchange rate, and we show how this happened to Japan in the mid‐1970s as well as to the UK in 1980 and to the US at the present time. Our examination of these earlier episodes suggests that, although this policy mix is generally successful in boosting consumption and containing inflation, its longer‐term effects on investment and net trade are adverse. Even in a large, relatively‐closed economy these adverse consequences mean that the policies have sooner or later to be reversed. In a small open economy this reversal will happen sooner rather than later.
WORLD OUTLOOK
Authors: Dicks Geoffrey
Published: January 2008

The recent weakness of the world economy does not undermine the relatively optimistic forecast for 1987 which we presented in May. At that time we suggested that activity would be sluggish for most of this year as a result of the impact effect of the OPEC III oil price collapse. But we also argued that by the end of the year there would be clear signs of a consumer‐led recovery as the personal sector adjusted to the real income gains and lower inflation benefits of the lower oil price and the reduction in nominal interest rates which followed. There is mounting evidence of rising consumer spending, particularly in Europe and it is something of a puzzle that output has not risen to meet this demand. The explanation is partly that producer confidence has lagged behind that of consumers, so that demand has been met from stock, and partly that spending has been supplied from countries outside the OECD, especially the NICs in the Far East. Nevertheless, we are convinced that our earlier view of OECD output prospects next year remains the most likely though, in recognition of the growing importance of non‐OECD competition, we have adjusted the output forecast down slightly. OECD GNP is expected to rise 2.6 per cent this year, with an acceleration to over 4 per cent in 1987 arid 1988. Moreover, we believe this can be achieved without a rebound in inflation, which is forecast to be stable at about its present level of 2 1/2 per cent.
Economic Viewpoint: Does broad money matter?
Authors: BUDD ALAN , HOLLY SEAN
Published: January 2008

Last October the Chancellor of the Exchequer suspended the target for the broad money supply (£M3). It was reinstated in this year's Budget with a range of 11 to 15 per cent. Its growth is currently exceeding even that apparently generous target. (On the terms of the original Medium‐Term Financial Strategy in 1980, the growth should have been cut to 5 to 9 per cent by 1983–4.) Does this rapid growth of £M3 matter? Does it raise the threat of higher inflation some time in the future, or can the government now readily abandon £M3 completely and concentrate instead on some other measure of the money supply – or indeed abandon monetary targeting altogether?

The relevance of £M 3 as an intermediate target depends on whether there is a stable demand for it. We report econometric evidence which suggests that there is a stable demand for £M3, which depends, among other things, on the rate of inflation. We believe that the unexpectedly rapid growth of the money supply since 1981 partly reflects an adjustment of desired money balances to lower inflation. But once this process of adjustment is complete, monetary growth must be brought to far lower levels. We conclude that the government should continue to use £M3 as an intermediate target, supported, as at present, by a narrow measure.
THE 1987 BUDGET
Authors: Budd Alan , Dicks Geoffrey , Breedon Francis
Published: January 2008

Our pre‐Budget forecast published last month correctly anticipated the main Budget measures (with the exception of the decision not to re‐valorise excise duties) and is very close to the Treasury's own forecast. We have updated the forecast for the Budget measures and other new information. Compared with the February Economic Outlook, our post‐Budget assessment has revised down slightly the short‐term forecast for output, inflation and the current account deficit. Consequently we share the Treasury's view that output will rise 3 per cent this year, but we are a little more optimistic on the outlook for inflation and the current account.

In holding the PS BR to last year's expected outturn of £4bn, and more particularly in cutting the PSFD by £11/2zbn, the Budget represents a tightening in fiscal policy. Whether the overall policy stance is tightened depends on the response of the monetary authorities. Early indications are that the government will prevent interest rates from falling as far or as fast as they would otherwise do and that the exchange rate will be allowed to rise. This implies a tightening of policy in order to head off problems on inflation or the balance of payments. This argument is supported by the Treasury's own forecast, which is more pessimistic on both inflation and the current account than its predecessor in the Autumn Statement, and explains the Chancellor's decision not to re‐valorise excise duties. The post‐Budget forecast incorporates this change in policy. We now assume that the sterling index averages 70 this year and that base rates fall to 9 per cent by the end of the year.
The UK Balance Sheet
Authors: DICKS GEOFFREY , ROBERTS MELANIE
Published: January 2008

With net overseas assets of well over $100bn the UK is now the world's second largest creditor nation after Japan. This has come about because the UK current account benefited from large‐scale oil revenues from 1980 onwards, which produced a series of current surpluses. Fortunately the funds were invested overseas at a time of significant recovery in world equity markets. As a result of the increase in its external assets, the UK now receives £5bn p.a. or more from interest, profit and dividend earnings on these assets ‐ a valuable cushion to the run‐down in oil revenues.
Economic Viewpoint: Towards Exchange Rate Stability?
Authors: Budd Alan , Dicks Geoffrey
Published: January 2008

At their recent meeting in Washington the Group of Seven reafirmed their desire to hold exchange rates at about their current level. In this Viewpoint we consider the prospects for success. We conclude that although current rates are feasible in terms of competitiveness, the system will remain under strain as long as there are major inconsistencies between jiscal policy in the US and the rest of the world. The present conjuncture of interest rates and inflation points to a further dollar depreciation. It would be better, in our view, to enact this quickly and to attempt to stabilize exchange rates at sustainable levels: the policy of holding the dollar is misguided.
The Conduct of Monetary Policy Without Monetary Aggregates
Authors: CURRIE DAVID
Published: January 2008

A central dilemma for the monetary authorities is how to determine monetary policy. The increasing unreliability of monetary aggregates has led over the past few years to less concern for monetary targeting, both in the UK and elsewhere, and a greater influence for the exchange rate on monetary policy. But in the UK, most recently, there has been a move away from setting monetary policy in relation to the exchange rate and external considerations in favour of setting monetary policy in relation to domestic demand. Not surprisingly, this shift has occurred at a time of rising concern about domestic overheating. It illustrates the dilemma of whether monetary policy should be driven by domestic demand considerations or by external, exchange rate considerations. This dilemma is not just confined to the UK for it is a real source of conflict underlying the Louvre Accord and its successors that seek to determine G7 exchange rates in a cooperative manner.

In what follows, we argue that exchange rate developments should have an appreciable influence on monetary policy, since this is helpful in attaining stable inflation. But we also suggest that this influence should not go too far, since this stability of inflation may be at the expense of stability of domestic demand and output. Targeting of exchange rates within narrow bands is unlikely to be desirable, unless fiscal policy can be used more flexibly to stabilize domestic demand. This suggests that, in the period up to the spring, the use of monetary policy to hold the £/JDM exchange rate within narrow limits may have been overdone. More seriously, international exchange rate agreements among the G7 countries are likely to founder under adverse market pressures, unless current imbalances in fiscal policy are adjusted. In the absence of greater flexibility in fiscal policy, policy makers will have to trade off domestic and exchange rate considerations in determining monetary policy. An important outstanding issue that needs further consideration is what indicators should be used for monetary policy, in a world in which monetary aggregates provide unreliable signals.
Savings and the Budget
Authors: CURRIE DAVID , HOLLY SEAN , SCOTT ANDREW
Published: January 2008

The fall in the personal sector savings ratio to a record low last year has been a major factor behind the rapid growth of domestic demand in the past two years and the associated deterioration in the current account. It is also a major uncertainty in the Chancellor's Budget judgement. Existing econometric relationships for the consumption function have failed to predict the fall in personal savings over the past few years. Possible explanations include statistical error, the effects of financial deregulation, the housing boom, expectations of higher growth in incomes, and demographic influences. In this Viewpoint, we report on a new consumption function that successfully explains the decline in savings. It provides evidence of a major demographic influence resulting from the decline in the proportion of the population in the 45–64 age cohort, the main savers in society. Subsidiary effects arise from the boom in house prices, and statistical mis‐measurement. The equation predicts an appreciable revival of savings over the next few years as the 45–64 age cohort grows again. These shifts in demographic structure reflect the after‐effects of the Second World War. This new evidence suggests that the Chancellor has done quite enough to ensure a slowdown in consumption, and that he would be ill‐advised to heed calls for special measures to boost savings. By contrast, well conceived tax changes that remove microeconomic distortions in the tax system (perhaps moving in the direction of an expenditure tax) would improve the tax structure, and may well increase the scope for tax cuts in future budgets. Our new consumption function also lends weight to the Chancellor's argument that the current account deficit is not a source of concern, insofar as it arises from a shift in savings associated with demographic changes that will be reversed in due course.
The London Business School with Gower Publishing
Authors: Dicks Geoffrey
Published: January 2008

The debate amongst economic forecasters currently centres on whether the UK will experience a “hard” or a “soft” landing. Those outside this narrow community probably have an intuitive feel for what is implied by the metaphor and understand that the recent swing in City opinion towards a hard landing implies a less favourable overall economic performance. But what precisely constitutes a “landing” ‐ soft or hard ‐ and why is the City view moving towards the latter? In this Forecast Release we show that the debate revolves around the cost in output and employment terms of the government's policy to remove excess demand and hence reduce inflation. This cost in turn depends upon the government's ultimate inflation objectives, the extent that demand is currently excessive and the speed with which that excess demand is removed by high interest rates. Doubts on the two last explain the recent hardening in City attitudes.
The London Business School With Gower Publishing: FIGHTING YESTERDAY'S BATTLES
Authors: Dicks Geoffrey
Published: January 2008

With still no firm evidence at home of a recovery in non‐oil GDP, the government's main worries centre on the path of output ahead of the General Election. In a forecast, which relies heavily on exports to stimulate demand in 1992, the Treasury cannot regard the rising probability of renewed recession in the US or the very sharp slowdown currently taking place in Europe as the post‐unification German boom runs out of steam with equanimity. The fear mist remain in Conservative politicians' minds that there will be no meaningful recovery within an electorally significant timescale. We sketch out this background, but our focus here is not on the prospects for recovery; rather we ask whether the recession has achieved its objectives. The recession was, it should be remembered, the direct product of government policy ‐ interest rates were raised to 15per cent ahead of ERM membership ‐ aimed at reversing the excesses of the late 198Os'boom and in particular at bringing inflation quickly down to acceptable European levels and reducing the deficit on the current account, which at its peak in 1989 amounted to 4 per cent of GDP. Our answer is that, over the last year of recession, considerable progress has been made: the rate of inflation is now in line with that in Germany and the current account deficit has fallen to under 1 per cent of GDP. But, on the government's own forecasts contained in the Autumn Statement, there will be some slippage on both counts in 1992. It is this worrying feature that we consider here. Our overall conclusion is that the recession has not completely delivered its objectives and that, even as the politicians turn their attention to recovery, we still have to fight yesterday's battles.
Economic Outlook 1991 – 1995: The London Business School with Gower Publishing: THE HOUSING MAFUCJIT IN RECESSION : A PAINFUL ADJUSTMENT TO ERM DISCIPLINE
Authors: Milne Alistau
Published: January 2008

We, together with almost every other commentator on the UK housing market, forecast a recovery of house prices and turnover during 1991. These hopes have been disappointed. This Forecast Release addresses some of the questions raised by this prolonged weakness in the housing market. Why did we, and so many others mis‐judge the outlook for house prices and housing investment? Are there structural problems, especially those associated with the adjustment to the inflationary discipline of the E M, which are preventing a revival? When will recoverly take place and can there ever be a house‐price boom similar to 1984–1988 again?

One reason for the unanticipated weakness of the housing market is the growing problem of mortgage arrears and possessions. This can be expected to produce at least some temporary weakening of house prices as a reaction to the current volume of empty properties being put onto the market.

There is a more fundamental reason for the current weakness of house prices. Unlike previous house price booms and busts, the present recession offers no relief to the hard‐pressed borrower in the form of a rapid inflation of average earnings. Difficulties with mortgage repayments, for highly indebted households, are set to continue for some time. These lessons are not being lost, either on prospective purchasers who are’ being discouraged from taking out substantial mortgages in relation to their incomes, or on mortgage lenders who are being much more prudent in the setting of mortgage to‐ income and mortgage‐to‐price limits. The result is a long overdue adjustment of British attitudes towards own er‐occupation.
The London Business School with Gower Publishing: Forecast Release: A PRIZE WORTH HAVING: A PRICE WORTH PAYING
Authors: Burrell Andrew , Dicks Geoffrey
Published: January 2008

Inflation is ‘licked’, according to the Prime Minister: in August it fell to 4.7 per cent, below the European Community average, and if present trends continue, it should fall below the rate in Germany within the next month or two (Chart 1). If this does occur, we can be sure that ministers will hail this development as a remarkable achievement, of proof that their economic policies are bearing fruit. At first sight, this is undoubtedly the case: inflation convergence within one year of ERM entry is an achievement which cannot be belittled ‐ it took France ten years and Italian inflation has still not converged. But the performance has to be placed in context. The German economy is in the midst of a post‐unification boom: output is rising at a near 5 per cent rate; despite large‐scale immigration from the east, unemployment is at its lowest level since 1981; indirect taxes have been raised to pay for massive transfers to the east; monetary policy has been tightened. It is unsurprising that inflation reached a ten year high in July of 4.4 per cent. The British economy on the other hand has been in severe recession for the last year: output has been falling almost as rapidly as it has been rising in Germany; unemployment has increased by nearly one million; interest rates have been cut repeatedly with immediate benefit to the retail price measure of inflation. Low inflation may be a ‘prize worth having’ (which is how the Chancellor's Parliamentary reply was drafted) but it can still be asked whether the price was worth paying (which is how Mr. Lamont mis‐read his script).
Money as a Potential Anchor for the Price Level: a Critique of the P* Approach
Authors: ALLEN CHRIS , HALL STEPHEN
Published: January 2008

A number of recent articles have attempted to restore the use of a simple measure of the money supply as an indicator of future price levels and to re‐establish a causal link from money to prices. Most notably Hallman, Porter and Small (HPS) (1989a), (1989b) originated the approach using US data and Hannah and James(1989) have applied it to the UK The approach broadens the traditional idea of a constant velocity of money by introducing the notion of V* and Q*, the long‐run value of velocity and income. These are then used to define P from the traditional quantity theory of money as the long‐run equilibrium price level. The analysis then proceeds to estimate a standard Error Correction Model (ECM) for price determination with the levels effect given by (P‐P*)t‐1. The conclusion drawn is that ‘a measure of money that determines the long‐run future level of prices is useful in determining the proper monetary policy for attaining price stability. We have shown, through the construction of P*, that M2 can serve as this determinant for the price level’ (Hallman, Porter and Small (1982a) p. 23).

We argue in this paper that the P* approach is flawed. It is certainly more complex than traditional monetarist approaches but the fundamental questions of causality are in no way either affected or resolved. The P* analysis is a variant on more conventional cointegration analysis (Engle and Granger (1987), Johansen (1988), Hall (1989)) and we argue that the Johansen framework allows us to address the question in a formal and more complete way. When this approach is applied to the US data used by HPS, we find that while the P* relationship does indeed represent a cointegrating one, it does not have a causal link with prices but rather the causality runs from prices to money ‐ this result conforms well to the work of Hendry and Ericsson (1990) or Hall, Henry and Wilcox (1990), which use this form of relationship to model the demand for money.
THE TREASURY'S BUDGET
Authors: Currie David , Dicks Geoffrey
Published: January 2008

This year's Budget not only marked the end of Thatcherism, it also pointed to a shift in power back towards the Treasury. Mrs. Thatcher's favoured approach on local finance, child benefit and mortgage tax relief were unceremoniously dumped and replaced by the Treasury emphasis on fiscal neutrality and marginal tax rates. We discuss what this might mean for future Budgets. The Treasury forecast is extremely gloomy, predicting a 2 per cent drop in output this year. We remain more optimistic and, as in February, expect a revival in consumer spending to lead the recovery over the next few months. Despite our stronger output forecast, we endorse the Treasury view that inflation and the current account deficit will fall sharply this year.
Briefing Paper: Non‐Manufacturing Investment and UK Aggregate Demand
Authors: MILNE ALISTAIR
Published: January 2008

The standard view of business fluctuations gives the leading role to investment, in both fixed capital and stocks, which raises aggregate demand in boom and reduces it in slump. The recent behaviour of the UK economy seems to have been a particularly marked departure from the standard model. Movements in personal consumption have played an unusually important role in both the rapid increase of demand from 1986 to 1989 and in the current recession. Stock investment, owing to improvements in the technology of stock control, is no longer a driving force. Manufacturing investment, while rising during the boom, contributed relatively little to increasing demand. The conventional wisdom now has it that recent UK experience is that of a consumption driven business cycle.

This Briefing Paper argues that this down‐playing of the role of investment has been overdone. What has deceived the eye is the concentration on manufacturing. Investment did make a very large contribution to the recent boom, with the biggest increases in investment undertaken by non‐manufacturing industry: a component of demand which attracts little regular scrutiny and less understanding. The textbook model still applies to the UK.
Why the Pound Should be Devalued Inside the ERM
Authors: WREN‐LEWIS SIMON
Published: January 2008

I believe the choice of DM2.95 as a central rate for sterling's entry into the ERM was a major mistake of macroeconomic policy, on a par with monetary targeting and underestimatingtlle late 1980s' consumer‐led boom. Indeed it was a belief that we were about to make this mistake that led me to undertake, with colleagues at the National Institute of Economic and Social Research, a detailed and unique study of the choice facing policy makers. I shall have more to say on that study below. Shortly after entry I wrote: “The danger is that the government will attempt to defend the present exchange rate bands at all costs. As a result it may produce, or fail to prevent, a recession on the same scale as 1980‐81. (Wren‐Lewis, 1990, emphasis added). I fear that much of this has come to pass, but we still have a chance to retrieve something.

To propose a devaluation of sterling within the ERM requires three distinct arguments. The first is that we entered the ERM at a real exchange rate which was above a level required to produce a sustainable current account of the balance of payments. The second is that this matters, and in particular that it has prevented the government from taking steps to counteract the recession. The third is that the gains in adjusting, through a realignment, to a lower rate now outweigh the loss of credibility that would be involved. I shall consider each point in turn.1
The London Business School Econometric Model: An Update 1992
Authors: BURRELL ANDREW
Published: January 2008

This Economic Outlook presents a forecast produced on a large, with more than 700 variables, econometric model of the UK developed over the last 25 years by researchers at the Centre for Economic Forecasting. As macroeconomic theory is not static, new equations are regularly incorporated into the model framework to replace, or augment, older ones with the aim of improving our understanding of the UK economy. The best way to assess the impact of changes to the model is to perform a series of simulation exercises and compare the results of the system as a whole with established theoretical priors. In this paper we discuss the most recent changes to the structure of the model and describe the results from four simulation exercises.
Economic Outlook 1991–1995: The London Business School with Gower Publishing: Forecast Release: THE CHANCELLOR'S ECONOMIC ADVICE
Authors: Dicks Geoffrey
Published: January 2008

Within the last month the Chancellor has made two important speeches on macroeconomic policy. The first, to Surrey businessmen in June, pledged the UK to the French route to a ‘virtuous circle of low inflation, rising competitiveness and increasing market share’; the second, in July to the European Policy Forum, vigorously defended his present policy against the alternatives, which he dismissed as ‘illusory or destined to fail’, of devaluation or cutting interest rates. On both occasions Mr. Lamont placed the permanent conquest of inflation at the centre of his policy, arguing that holding sterling at its present central parity of DM 2.95 is the only way to achieve this objective. In his view the consequence of any of the alternative proposals would be ‘either higher interest rates, higher inflation, or most likely both’.

In this Forecast Release we consider these claims and the economic advice on which it is based. On the latter we would surmise that the thrust of the advice which Mr. Lamont is receiving is that he has the opportunity to deliver a sustainably low inflation rate and that this requires a stable pound within the ERM. The alternatives involve a sterling devaluation which, no matter how obtained, would obstruct the goal of permanently low inflation in return for only transient benefits on output and unemployment. But the price of defeating inflation has been high and is not yet fully paid. Moreover the goalposts have been moved: to reach the French position on competitiveness, which underpins their gains in market share and which has taken the best part of a deeade to achieve, requires a still better inflation performance on the part of the UK and while this is being achieved, adjustment costs will persist. It is partly in defence of his own policies and partly in an attempt to moderate the already‐high adjustment costs that Mr. Lamont has adopted a more combative stance. His advice is that to compete with Europe, we cannot award ourselves pay increases far in excess of European levels, indeed we need a period of below‐average pay rises.
Economic Outlook 1991–1995: London Business School with Gower Publishing: Forecast Release: A NEW ERA FOR UK EARNINGS?
Authors: Burrell Andrew
Published: January 2008

Wage growth has been one of the few economic indicators moving in the right direction for the government in recent months. Critics would point to the influence of an extra 1 million jobless in bidding down pay awards but it is clear that the present deflation has been more effective than in the early 1980s. Nevertheless, it is too early to celebrate the transition to European inflation rates. The present situation is not irreversible and to a large extent has been the product of unusual circumstances. Full adjustment could be a longer and more difficult process.