bluuebunny/crossref_metadata_2025 huggingface dataset:
Currency of Invoicing in Merchandise Trade
Authors: Page S.A.B.
Published: March 2007

Almost all trade among industrial countries is now invoiced in the currency of one of the trading partners, normally that of the exporter. Use of a ‘third country currency’ (normally the dollar) is important only in trade with developing countries. Except for the decline in sterling's use as an international currency, there is no evidence that exchange rate expectations are a strong influence on traders' choice of currency.
Public and Private Sector Manual Workers' Pay 1970-1977
Authors: Dean A.J.H.
Published: March 2007

The earnings of manual workers in the public and private sectors for the years 1970-77 are examined. The marked improvement in the relative pay of public sector workers which had been noted in earlier work is confirmed. It is found that in the period from 1970 to 1976 the relative pay of the public sector improved by over 10 per cent. In 1977 there was a movement back in favour of the private sector of about 2 1/2 per cent, but this still left the relative pay of public sector manual workers 10 per cent higher than in the 1950s and 1960s.
Properties of Macroeconomic Models of the UK Economy: A Comparative Study
Authors: Laury J. S. E. , Lewis G. R. , Ormerod P. A.
Published: March 2007

This article describes a variety of simulations carried out with the three major macroeconomic quarterly forecastingmodels of the UK currently in operation—those of the Treasury, the London Business School and the National Institute. The simulations cover both fixed and floating exchange rate regimes.
St. Louis Models of the UK Economy
Authors: Matthews K.G.P. , Ormerod P.A.
Published: March 2007

The economists at the Federal Reserve Bank of St Louis in the United States have produced over a number of years a series of models which amount to a reassertion of the short-run quantity theory of money. This theory has been summarised by Tobin as ‘in the short-run, nominal income is proportional to the supply of money, although changes in nominal income may affect output as well as prices’. In other words, it is postulated that in the short-run there is a large and rapid influence of monetary actions on nominal income relative to that of fiscal actions and, indeed, that fiscal action unaccompanied by changes in money has little net effect on national output even in the short-run. This is an extreme version of the monetarist position, given that most monetarists, including Friedman, choose to work in the framework of the long-run rather than the shortrun quantity theory.
Incomes Policy and Wage Inflation: Empirical Evidence for the UK 1961-1977
Authors: Henry S.G.B. , Ormerod P.A.
Published: March 2007

Various kinds of incomes policies have been in operation in the UK over a substantial part of the post-war period, particularly since the mid-1960s. There is considerable uncertainty about the effects of incomes policy on the rate of change of wages, and in this paper we attempt to assess the effects of incomes policy using econometric equations of wage inflation.
The Reform of the Wage Bargaining System
Authors: Blackaby F.T.
Published: March 2007

After the fall of the Conservative Government in February 1974, at the end of that period of incomes policy, the rise in average earnings in the UK went up to a figure of 30 per cent in the year to mid-1975. In the first stage of the incomes policy which followed, that figure was brought down to 14 per cent and in the second stage to 8 per cent. There can be no reasonable doubt that this deceleration was the consequence of the incomes policies adopted. None of the equations which have been put forward to represent the ‘normal’ movement of wage rates or earnings would have produced a deceleration of this kind. The third stage of incomes policy, now coming to an end, differed significantly from the first two. In the first two stages, the numerical limit set for earnings increases had the explicit backing of the General Council of the TUC. The third stage did not have this backing (although the General Council did support the twelve-month rule); it was left to the Government to try to hold the figure of a 10 per cent rise in average earnings, with a variety of ad hoc sanctions on employers who exceeded the figure, and with a number of exceptions for productivity agreements of varying degrees of genuineness. The resulting rise in average money earnings is likely to be of the order of 15 per cent.
Public Expenditure: Policy and Control
Authors: Price R.W.R.
Published: March 2007

The present government came to office with a commitment to cut state spending while reducing government intervention in the economy and extending the sphere of private choice through tax reductions. This philosophy, while of significance for the longerterm development of the public sector, is actually of limited use in explaining the 1979 public expenditure reductions. These stem from one of the recurrent crises of financial control which have afflicted public spending plans in the last decade and a half. The purpose of this article is to analyse the financial and economic background to the cuts, which, it is argued, would have called for programme adjustments whatever administration had been in office, though the type of reductions made may bear the imprint of different political philosophies.
Industrialisation and the Basis for Trade
Authors: Batchelor R. A. , Major R. L. , Morgan A. D.
Published: March 2007

This note outlines the principal results of an exhaustive study of Industrialisation and the Basis for Trade which will be published by Cambridge University Press later this year.
Industrial Policy and Economic Planning in Japan and France
Authors: Brown C. J. F.
Published: March 2007

The relative decline of British industry has prompted some suggestions that Britain should model its planning and industrial policies on Japanese and French experience. This article considers the role of the Ministry of International Trade and Industry (MITI) in Japan and the Commissariat Général du Plan in France and examines the mechanisms through which planning and industrial policy have operated. It concludes with a discussion of the relevance of this experience for the UK where government policy appears to have been less successful.
Forecasting Commodity Prices
Authors: Ray G. F. , Timm H. J.
Published: March 2007

After a brief description of the National Institute's approach to forecasting the price development of the major commodities in world trade this note presents a simple method for checking the aggregate outcome of that exercise.
3. The Money Supply and the PSBR
Authors: Cuthbertson K. , Henry S. G. B. , Mayes D. G. , Savage D.
Published: March 2007

The relation between the government's need to borrow and the stock of money in the country is a complex one. It is affected by the nature of the expenditures and revenues which require the borrowing and by the way in which the borrowing is financed. From time to time it has been suggested that nevertheless the two magnitudes have moved together in a stable manner. In this article we demonstrate that no such convenient coincidental movement appears to have been recorded in the UK and hence that it is possible for the government to permit variations in the PSBR to try to offset the recession even while maintaining a medium-term regime of monetary targets.
The Determination of Expenditure On Consumer Durables
Authors: Cuthbertson Keith
Published: March 2007

This article presents some alternative models of consumers' expenditure on durable goods and examines some general issues of econometric model building. In the preferred model, income, the change in liquid assets and the real cost of credit have a substantial effect on durables expenditure. Hence, both fiscal policy instruments such as a change in the rate of income tax and monetary variables such as nominal interest rates and sterling M3 influence durables expenditure.
The Newspaper Industry in Britain, Germany and the United States
Authors: Wagner Karin
Published: March 2007

This article contrasts the structure and productivity performance of the British newspaper industry with that of its German and American counterparts. The emphasis on national newspapers in Britain has led to much larger plants and a more concentrated industry than in either of the other countries, but the expected gains in productivity from economies of scale have not been apparent. The article then examines the implementation of the new technology and the importance of industrial relations in the successful operation of this mass-production industry.
Systematic Econometric Comparisons: Exports of Manufactured Goods
Authors: Brooks Simon
Published: March 2007

In the article we explain the basis of a series of comparisons of the explanations of the major macroeconomic variables in the UK economy which we are undertaking in a research project financed by HM Treasury. We seek to explain why it is that, despite the apparent objectivity of econometric method, modellers of the economy have published widely differing results. We illustrate our method with findings from the study of exports of manufactured goods, which present some clear examples of the difficulties encountered throughout the project. Full results will be available from the Institute.
Vocational Qualifications of the Labour Force in Britain and Germany∗
Authors: Prais S.J.
Published: March 2007

‘All the world has much to learn from German methods of education’, said Alfred Marshall some sixty years ago; as many others have also recognised, this is particularly true of vocational education. Until very recently however it has not been possible to make any comprehensive comparisons of the labour force—to assess the proportions of workers in various industries who have qualified at specified levels, and the proportions who have remained unqualified. Statistical comparisons of qualifications of the labour force hitherto have generally been confined to the narrow stratum of those in the uppermost educational echelons (those with university degrees or their equivalent); where more basic skills have been considered, comparisons have been limited to enrolments for selected broad groups of vocational courses. Very little has been available on the stock who have reached tested levels of proficiency.
The Choice of Invoicing Currency in Merchandise Trade
Authors: Page S.A.B.
Published: March 2007

If an exporter or importer uses a foreign currency, his income or costs will be immediately affected when the exchange rate changes; if he uses his own, there will be no effect on contracts that are already fixed. Analysing the pattern of invoicing throws light on what objectives are important in firms' decisions, and in particular on their attitudes toward foreign exchange risk. At the aggregate level, their choice of currency influences the effect of an exchange rate change on a country's balance of trade.
The Economic Effects of Industrial Relations Legislation Since 1979
Authors: Brown William , Wadhwani Sushil
Published: March 2007

This is the fourth article from members of the CLARE Group to appear in the Review. Future articles will normally appear about twice a year. The Review is pleased to give hospitality to the deliberations of the CLARE Group but is not necessarily in agreement with the views expressed. Members of the CLARE Group are M.J. Artis, A.J.C. Britton, W.A. Brown, C.H. Feinstein, C.A.E. Goodhart, D.A. Hay, J.A. Kay, R.C.O. Matthews, M.H. Miller, P.M. Oppenheimer, M.V. Posner, W.B. Reddaway, J.R. Sargent, M.F-G. Scott, Z.A. Silberston, J.H.B. Tew, J.S. Vickers, S. Wadhwani.

The industrial relations legislation of the 1980s has been widely credited with having made a major contribution to Britain's economic performance. This study evaluates its actual impact. The costs to trade unions of strike action have increased, but the legislation has had some perverse effects, not least in encouraging unions to tighten up their own organisation. The economic consequences predicted by the policy makers are investigated by means of a number of econometric studies. They suggest that the expected employment and wage effects did not occur. They also failed to provide improvements in labour productivity. The study offers an alternative explanation of these findings.
Labour Productivity in UK Manufacturing in the 1970s and in the 1980s
Authors: Oulton Nicholas
Published: March 2007

What accounts for the productivity improvement experienced in manufacturing since 1979? Answers to this question are sought from a regression analysis of 93 manufacturing industries over the period 1971-86. The main findings are that when other influences, such as raw material prices and the shock of the 1980-1 recession, are eliminated, there has been an improvement in the 1980s in the growth rate of productivity whose impact effect averaged 4 per cent per annum. Between a quarter and a half of this is attributable to a decline in the disadvantages of unionisation.
Chapter II. The World Economy
Authors: Barrell R.J. , Gurney Andrew , Dulake Stephen
Published: March 2007

Uncertainties over the prospects for the oil price mean that the short-term forecast is subject to a wider margin of error than usual. The Iraqi invasion of Kuwait could lead to a reduction of world oil production by at least eight per cent immediately and has already produced a significant rise in oil prices. Our central forecast assumes that in the short term oil prices will stay firmer, but that in the longer run there will be no major change in oil market conditions. We have assumed that oil prices (or more precisely the arithmetic average of Brent and Dubai spot prices) will be around $25 per barrel in the second half of 1990, but that they will fall thereafter. This should leave crude oil prices in the range $20–22 per barrel by the end of 1991. Annex I to the chapter investigates the effects of an oil price rise on the world economy, and looks in particular at the distribution of the effects across the major economies. The conclusion of the Annex is that a 25 per cent rise in oil prices is likely to raise inflation in the major seven economies by only a quarter to a half a per cent in the short run, and to lower output by up to a half per cent.
Manufacturing Productivity Levels in France and the United Kingdom
Authors: van Ark Bart
Published: March 2007

International comparisons of levels of labour productivity are rare in the field of productivity analysis. In the case of Anglo-French comparisons, for example, it has already been widely established that the French economy was more slowly transformed from an agricultural economy into an industrial society than the United Kingdom; and that since the last world war manufacturing output has increased much faster in France than in Britain. The aim of the present study is to complement previous comparisons of growth rates of manufacturing productivity in Britain and France with estimates of the current differences in the levels of output per person-hour worked in a dozen branches which constitute the manufacturing sector.
The Implications of Closer European Integration for Australia and New Zealand
Authors: Mayes David G.
Published: March 2007

The European Community is an important trade partner for Australia and New Zealand taking 15 per cent of Australian exports and 18.5 per cent of New Zealand exports, while supplying 23.5 per cent and 18 per cent respectively of their imports. However, there has been a dramatic transformation during the 1950s, 60s and 70s away from the UK as the dominant partner (tables 1 and 2) especially in the case of New Zealand where the UK's share of exports went from 66 per cent in 1950 to 13 per cent in 1980.
Green Economics
Authors: Kay John , Silberston Aubrey
Published: March 2007

We all recognise environmental problems—the pollution of air and rivers, the destruction of rain forests, global warming. The article argues that environmental problems are less the result of inappropriate values than of an incorrect calculus, and that economic evaluation and economic instruments have a major role to play in the correction of that calculus.

The green prescription of lower growth as a means of reducing environmental damage is dismissed—if higher output is often the cause of the problem, it is also what enables us to afford to deal with it. Policy should start from an adequate evaluation of the costs and benefits of action and inaction; the article instances nitrate in water, where the costs of rectification seem out of proportion to any likely benefit. Market mechanisms—such as taxes and tradeable licences—are often the best way of tackling environmental problems; but economists are sometimes as naive about their general applicability as non-economists about the effectiveness of prescriptive regulation.
Work on Balanced Accounts in the CSO: History and Prospects
Authors: Kenny P.B.
Published: March 2007

A technique for producing balanced national accounts was described by Stone, Champernowne and Meade in 1942, but there has so far been little use of the method in official publications. This article describes the experimental work undertaken recently by the Central Statistical Office and offers a personal view of the potential for further development. A variation of the original method of Stone et al, called partitioned balancing, seems likely to be useful in complex cases.
Balancing the National Accounts: Comments on Papers By Andy Blake and Nigel Pain (NIESR) and Peter Kenny (CSO)
Authors: Weale Martin
Published: March 2007

The idea of balancing the national accounts can be traced back to the start of national accounting in its modern form. Estimates of national income had been produced in the years before the Second World War, but the first attempt to cast economic data in an accounting framework was that of Meade and Stone (1941). A year later the first paper on balancing the national accounts (Stone, Champernowne and Meade, 1942) appeared. Had the least squares approach, which Peter Kenny at the CSO has worked on, been computationally feasible at the time, balanced accounts would probably be taken as a matter of course, and would not be seen as a slightly confusing adjunct to the conventional ways of presenting the data.
Chapter II. The World Economy
Authors: Gurney Andrew , In't Veld Jan Willem , Barrell Ray
Published: March 2007

GNP growth in the major seven economies continues to decline from the cyclical peak reached in 1988. The latest national accounts statistics show that all major seven economies are now growing more slowly than they did last year, with the United States, United Kingdom and Canada in recession. This slowdown in activity appears to have been caused primarily by the tightening of monetary policy that occurred between 1988 and 1990. Short-term interest rates rose by 4.4 percentage points in Germany between 1987 and 1990, by 3 percentage points in Japan between 1987 and 1990, and by 2.2 per cent in the United States between 1987 and 1989.
FEERs and the ERM∗
Authors: Williamson John
Published: March 2007

A number of economists, including the author, were critical of the central rate that was chosen when sterling entered the ERM in October 1990, on the ground that it overvalued the pound. Specifically, the central rate against the other ERM currencies implied a higher value for the pound than that yielded by calculations of ‘fundamental equilibrium exchange rates’ (FEERs).

The present paper aims to explain the concept of the FEER, introduced by the author in Williamson (1983), and argues that it provides the right criterion for assessing whether a currency is correctly valued. It also sketches the evidence for believing the pound's ERM central rate to be above the FEER. A final section considers the policy implications of the finding that sterling is overvalued.
Macro Economic Convergence in Europe
Authors: Anderton R. , Barrell R. , In't Veld J.W.
Published: March 2007

Economic convergence within the EMS member states is a precondition for further moves to economic and monetary integration. The Delors Report has set out a path toward EMU in three stages, where transition to the next stage depends on some degree of convergence being achieved in the previous stage. In October 1990, the European Council in Rome agreed that ‘in order to move on to the second phase (of economic and monetary union), further satisfactory and lasting progress toward real and monetary convergence will have to be achieved’ (Press communique, European Council, Rome, 28 October 1990). The draft treaty text for the Maastricht summit states that before the start of the second phase in January 1994, the council shall assess the progress made with regard to economic and monetary convergence, and in particular with regard to price stability and balanced public finances.
The UK Economy
Authors: Young Garry
Published: March 2007

The UK economy now appears to be progressing along a path that is just consistent with the economic objectives of the government. Inflation is currently slightly above the 2½ per cent target, but stands a reasonable chance of meeting it by the end of the year. Government borrowing in the most recent financial year was above expectations, but could still satisfy the Maastricht fiscal criterion next year without further tax cuts. The government does not have an explicit, quantitative objective for economic growth, but this too is broadly acceptable at a current rate of expansion of 2 per cent per annum. Fears of an early recession now appear to be disappearing and growth looks likely to improve over this year and next.
The Performance of National Institute Economic Forecasts
Authors: Poulizac David , Weale Martin , Young Garry
Published: March 2007

Economic forecasts are usually presented as point estimates, despite the margin of uncertainty which surrounds them. In November 1995 the National Institute began to present estimates of the probability of the government's inflation target being met and of there being a fall in GDP. This article describes the methods that we use for calculating these probabilities. We show, by studying eight successive forecasts of the same event, how forecast reliability improves as the forecast horizon approaches and demonstrate that this can be explained in terms of the accumulation of information about the state of the economy.
An Assessment of OECD and UK Leading Indicators
Authors: Weale Martin
Published: March 2007

Leading indicators are produced by both the OECD and the UK Office of National Statistics as tools for predicting turning points of the business cycle. An assessment on the basis of performance at turning points is frustrated by their scarcity. It is found that the indicators generally have significant (but not good) ability to predict changes in the direction of the variable they are intended to lead. When they are included in VAR models the standard error of quarter on quarter changes is generally lower than when pure autoregressions are used. However, the forecasting power of such equations is poor, and the general conclusion is that such indicators are not good forecasting tools.
Reform of Mathematical Education in Primary Schools: the Experiment in Barking & Dagenham
Authors: Prais S.J.
Published: March 2007

Experimental reforms in the teaching of mathematics incorporating Continental teaching methods were begun in January 1995 in fifteen classes in six primary schools in the London Borough of Barking and Dagenham. The classes were visited in June 1996 by the Secretary of State for Education Mrs Gillian Shephard, by HM Chief Inspector of Schools Mr Chris Woodhead, and by the Opposition spokesman for education Mr David Blunkett; the media, including the BBC television programme, Panorama, provided accounts for the wider public. The reforms resulted from a wider research programme—comparing Continental and British productivity, education and vocational training—that has been under way at the National Institute for over a decade, by a research team led by SJ Prais; in recent years the research has benefited from close co-operation with the inspectorate and schools in Barking and Dagenham; this phase was funded by the Gatsby Charitable Foundation, to the Trustees of which—and especially Mr David Sainsbury for his personal encouragement—the Institute is much indebted. The commentary below outlines the background to these educational reforms, explains what has been done so far, and sets out for discussion some proposed next steps.
The UK Economy
Authors: Young Garry
Published: March 2007

Since the beginning of 1995 output has been growing at a quarterly rate of just under ½ per cent, slightly less than most estimates of the trend growth rate that the economy can sustain in the long run. As a consequence, there has been no progress in closing any pre-existing output gap. Over this period, there has been a lack of any domestically generated inflationary pressure. Indeed, if import prices had not risen sharply in 1995, the underlying rate of inflation would have remained below 2½ per cent.
Financing the United Nations
Authors: Broadbent Simon
Published: March 2007

The United Nations is financed by an international tax on its member states which is supposed to be based on capacity to pay. The most practical measure of this capacity is Gross National Product in the most recent year for which data are available, converted to US dollars at market exchange rates. Several alternative tax bases have been proposed but most have theoretical or practical drawbacks. Although the UN's effective tax rate is very low, a case can be made for additional relief for poor countries; the appropriate extent of this is primarily a matter of political choice. The present method of calculation of contributions does not however provide a good measure of current capacity to pay, largely because a succession of ad hoc adjustments over the years have given excessive weight to out-of-date economic data.
The UK Public Finances: Past Experience and Future Prospects
Authors: Pain Nigel , Young Garry
Published: March 2007

One of the more troubling aspects of economic performance in the UK since the recession has been the persistence of high levels of public sector borrowing. Borrowing reached a peak of 7.1 per cent of GDP in 1993–94 and has since fallen to 4.5 per cent in 1995–96, with a further fall to 3½ per cent in prospect for this year. Continued borrowing at high levels has raised public sector indebtedness. On the Maastricht treaty definition, general government debt has risen from 41.9 per cent of GDP in 1992 to an estimated 54.2 per cent of GDP in 1995 so that much of the leeway below the 60 per cent reference level has been used up. The overall net worth of the public sector has declined from 28 per cent of GDP to 14 per cent over the same period.
The World Economy
Authors: Barrell Ray , Morgan Julian , Pain Nigel , Hubert Florence
Published: March 2007

There was a pause in growth in a number of European economies around the end of 1995, with weak domestic demand leading to moves to return stocks to more normal levels. This was exacerbated by bad weather in the first quarter of 1996. Rather pessimistic conclusions were widely drawn from these few months, but recent developments, especially in Germany have made us, and others, more optimistic about the short-term prospects. In the EU as a whole output rose by 0.49 per cent in the first quarter. Whilst output in France and Italy appears to have declined in the second quarter, in part due to statistical factors arising from the extra working day in the first quarter, growth remained at or above trend levels in the UK, Spain, the Netherlands and Denmark, and recovered significantly in Germany. Industrial output in Germany rose continually in the six months to August, with manufacturing output at its highest level since 1992. This has begun to be reflected elsewhere in the EU, with industrial confidence rising for the first time in 19 months.
Promoting Efficient Competition in Telecommunications
Authors: Doyle Chris
Published: March 2007

Competition in telecommunications is being promoted throughout the world with extensive liberalisation occurring in many countries. Past monopoly provision means that the new era of competition features large incumbent operators. The traditional lack of rivalry means that to accommodate competition liberalisation entails the entry of new operators. These conditions could prompt incumbents to abuse their dominant position when confronted with new entry. Foreclosure problems in telecommunications are potentially very acute because successful entry is dependent on the incumbent offering interconnection. The services provided through interconnection, such as call origination and call termination, and the charges levied for these services, access prices, lie at the heart of pro-competitive measures. The access prices set by incumbents will require scrutiny In practice regulatory authorities face difficulties in evaluating access prices that balance the competing claims of the incumbent and entrants, and ensure that reasonable prices are established which are compatible with the promotion of efficient competition. In this article I outline some theoretical contributions on access pricing which have helped regulators to design regulatory regimes to promote efficient competition.
The UK Economy
Authors: Sheldon Marie , Young Garry
Published: March 2007

The economy is now operating at close to trend levels after 5 years of recovery from the deep recession at the beginning of the 1990s. Over this period output has grown by an average annual rate of 2.9 per cent but growth accelerated last Autumn to around 1 per cent per quarter, a rate well in excess of that which is sustainable in the long run. The key question at the current conjuncture is whether the necessary slowdown in the rate of growth will come about quickly enough that inflation remains under control or so abruptly that the economy is pushed back into another recession.
A Monthly Indicator of GDP
Authors: Salazar Eduardo , Smith Richard , Weale Martin , Wright Stephen
Published: March 2007

Cyclical indicators have hitherto been used as a means of describing the state of the economy on a month by month basis. However, they have proved unsatisfactory for a number of reasons and are now no longer published. This paper summarises a means of producing monthly estimates of GDP from existing monthly data. The technique can be used to extrapolate as well as to interpolate monthly data and therefore provides an indicator of the current state of the economy.
Comparative Properties of Models of the UK Economy
Authors: Church Keith B. , Mitchell Peter R. , Sault Joanne E. , Wallis Kenneth F.
Published: March 2007

This article analyses the properties of five leading macroeconometric models of the UK economy, in the light of the current discussion of monetary and fiscal policy-making. In simulation experiments, the interest rate and the basic rate of income tax are used to target the inflation rate and to ensure fiscal solvency. Our results show that monetary shocks soon affect the response of quantity variables, and fiscal shocks have monetary consequences, thus the operation of monetary and fiscal policy cannot be separated. Although the Bank of England's view is that it takes two years for monetary policy to have its maximum effect on inflation, our results show that this depends on the approach taken to the modelling of expectations.
Economic Growth in East Asia and Western Europe Since 195 0: Implications for Living Standards
Authors: Crafts N.F.R.
Published: March 2007

Evaluations of economic performance conventionally rely on levels and rates of growth of real GDP per person. This can be misleading especially when comparing East Asia with Western Europe. Here it is especially important to allow for differences in hours worked, and when this is done, Asian countries' productivity outcomes look much less impressive than is usually thought. More generally, it is argued that real GDP/person is not a good guide to well-being in high income countries where broader measures of economic welfare are required and index number problems preclude reliable league tables.
Productivity, Machinery and Skills in the United States and Western Europe
Authors: Mason Geoff , Finegold David
Published: March 2007

In two very different industries—biscuit manufacturing and precision engineering—US leadership in labour productivity relative to Western European countries is found to depend heavily on greater opportunities for scale-economies of production. Inter-country differences in the age and sophistication of machinery contribute only very partially to relative productivity performance but the US does benefit from higher levels of physical capital per worker. In terms of human capital, American enterprises are well-served by access to a relatively large supply of technical graduates which helps to compensate for deficiencies at lower levels of vocational education and training. The comparisons suggest that the present development of a US-style mass higher education system in Britain could make a positive contribution to British productivity performance. However, the traditional ‘American model’ of production organisation based on a semi-skilled shopfloor workforce is not relevant to the current and future skill needs of most British manufacturing employers.
The Internationalisation of German Companies' R&D
Authors: Cantwell John , Harding Rebecca
Published: March 2007

Research and development in the German economy is internationalising: recently there has been an increase in outward DFI by German companies relative to the inward DFI of foreign-owned companies in Germany. By examining the long term trends in patents granted in the USA to the world's largest firms between 1969 and 1995, it emerges that Germany is now catching-up with a world-wide trend to internationalise technological activaty, and has done this on the basis of its core technological strengths developed historically at a national and corporate level. The research and innovation infrastructure of the economy remains strong, and German companies are locating abroad in the industries which are the most science-based, which are supportive of domestically-based core technologies and in which they hold the strongest competitive position relative to other European firms. German-owned companies retain their dominance of German-located R & D in five key industries—electronics, chemicals, pharmaceuticals, metals and motor vehicles—and they have developed technological specialisms clearly focused on the core technologies of these industries, at home and now also abroad.
The World Economy
Authors: Morgan Julian , Pain Nigel
Published: March 2007

The effects of the financial turmoil in Asia are beginning to emerge in the industrialised economies, with a sharp decline in export sales to East Asia apparent in the most recently available trade statistics for Japan, the United States and Australia. Manufacturing output has fallen this year in both the United States and the UK, with external demand weakened further by the sustained rise in their real exchange rates over the past eighteen months. Firms in the major economies are facing greater price competition from Asian producers in their main markets. Imports have fallen sharply in the affected Asian economies, and domestic demand has been weak. This has also led to some weakness in most commodity markets. Global demand pressures have been further eased by the continuing downturn in Japan, where the economy is now on the verge of recession. This can only prolong the adjustment process for the smaller Asian economies as Japan is a key export market for them, and raises renewed risks of systemic failure within financial markets. Japan and the five smaller Asian economies directly affected by currency crises last year both account for around 7 per cent of total world trade.
Optimal Monetary Policy
Authors: Blake Andrew P. , Weale Martin , Young Garry
Published: March 2007

In this article we propose a policy framework for inflation targeting that contains elements of both optimal and simple rules. We use a simple feedback rule for the interest rate to look after monetary policy in the long run whilst using optimal control in the short run to determine appropriate responses to shocks. The composite policy is capable of substantial welfare improvements over using a simple rule alone whilst maintaining tractability. We see the use of such a framework together with a fully specified model as a feasible approach to practical policy design.
Fiscal report
Authors: Weale Martin , Young Garry
Published: March 2007

The government's Economic and Fiscal Strategy Report (EFSR), published on 11 June, set out its fiscal strategy and its overall spending plans for the years ahead. Strategically, the government stressed the distinction between current and capital spending and committed itself to borrowing no more than what is necessary to finance capital investment over the economic cycle. It also committed itself to maintaining debt at prudent levels, thereby limiting the amount that it is prepared to spend on capital items.

We devote the bulk of this fiscal report to an alternative analysis of government expenditure, arguing that the distinction between consumption and capital investment, which the government is keen to make on the expenditure side, should also be made on the revenue side. It is possible to distinguish taxes paid out of consumption from those paid out of saving and thus to calculate the extent to which the government adds to consumption or saving in the economy as a whole. From a macroeconomic perspective this is much more important than whether the government achieves any particular target values for the public sector net cash requirement (the old PSBR). One might also question whether there is any merit in the ‘golden rule’ that public borrowing should not exceed public net investment over the cycle if public borrowing is kept down through the imposition of taxes which are paid mainly out of saving. Logically the government ought to be more concerned about its impact on the level of saving in the economy as a whole than about whether it follows the golden rule. However we begin by providing our independent assessment of the budget situation from the conventional perspective.
Financial crisis in East Asia: bank runs, asset bubbles and antidotes
Authors: Miller Marcus , Luangaram Pongsak
Published: March 2007

No one can deny the outstanding success of the East Asian economies in the last two decades of rapid economic growth backed by surging capital inflows. Key questions posed by the current crisis are: what went wrong, and why? how to fix it? and, how to prevent a recurrence? To answer them, the article begins with a brief overview of recent developments in the miracle economies of East Asia, focusing mainly on Korea, Indonesia and Thailand. We focus too on some of the shadows that came to darken the glittering success story—on declining competitiveness and growing financial vulnerability; and on regulatory failures in banking. Then we take a leaf from Charles Kindleberger's book (1996) on Panics, Manias and Crashes and discuss—with historical precedents—various types of financial crisis: speculative attacks on pegged exchange rates, asset bubbles, stock market crashes and bank runs. Based on the distinction between illiquidity, due to a shortage of cash, and insolvency arising from a failure of economic prospects, we go on to outline three main views of the current crisis.

First that it was simply due to reversal of capital flows, to a failure of collective action on the part of creditors which could and should have been solved by supplying extra liquidity—or by forcing creditors to roll over their loans. Second the view that the miracle had grown into a bubble that had finally had to burst: so the problem was essentially one of insolvency. Finally the view that we prefer, that the panic was not wholly groundless (and rescue efforts were bound to be difficult) mainly because weak regulation combined with implicit deposit guarantees had left local bankers free to gamble with the money that global capital markets had poured into their parlours. Panic set in when foreign depositors realised that there were not enough dollar reserves left for the guarantee to be credible. This account (championed most notably by Paul Krugman of MIT) involves both illiquidity and insolvency and helps to explain why the IMF was unwilling simply to throw money at the problem.

Why did the crisis spread like wildfire around the region? Was it because a bank run due to shaky fundamentals in one country was imitated elsewhere, as investors joined the herd heading for the exit? This and other accounts of contagion are discussed before turning to ideas for crisis prevention and management, and a brief account of future prospects for the region. The article concludes by outlining immediate steps to resolve the current financial crisis and by proposing international monetary reforms to prevent a recurrence.
The UK economy
Authors: Kneller Richard , Riley Rebecca , Young Garry
Published: March 2007

There has been a very sharp deterioration in confidence about the economic situation in the UK over the past three months. This has been highlighted in a range of business and consumer surveys. It is also evident in profit warnings from the corporate sector, falling asset prices, high profile job losses, downward revisions in economic forecasts and an easing of monetary policy. This pessimism is not now confined to the manufacturing sector as appeared to be the case in the earlier part of the year, but seems to pervade all sectors of the economy.
Section II. Prospects for North America and Japan
Authors: Pain Nigel
Published: March 2007

The US economy continued to expand strongly in the first half of this year. GDP rose by 2 per cent compared to the latter half of last year, broadly in line with the pace of growth observed throughout 1997. The unemployment rate fell to its lowest level since 1970, with private sector demand continuing to reflect the impact of the sustained appreciation in equity prices since 1994. We expect GDP growth to be a little under 3½ per cent this year. Recent events have sharply changed the short-term economic outlook for the coming months. Growth is now projected to slow significantly, with domestic demand pressures easing and external demand remaining weak. The correction in equity prices and the tighter financial conditions facing many companies should begin to exert a significant drag on economic growth, in spite of likely further relaxation in the stance of monetary policy. GDP is expected to rise by around 1½ per cent both in 1999 and in the year 2000. If credit market conditions were to tighten further, or asset prices to show a renewed decline, then the economy could well move close to outright recession by the end of next year.
Recent shifts in wage inequality and the wage returns to education in Britain
Authors: Machin Stephen
Published: March 2007

In this article I consider shifts in the structure of wages in Britain between the mid-1970s and mid-1990s. In the 1990s the rising gap between the highest and lowest paid was either stable or rose a little, but by nowhere near as much as in the 1980s. This seems to be, at least partially, due to the fact that faster educational upgrading has dampened down some of the rising wage differentials experienced by the more educated. However, demand still seems to be shifting in favour of the more highly educated and skilled because, despite the fact that there are many more workers with higher educational qualifications, their wages relative to other groups have not fallen. Finally, I argue that relative demand shifts in favour of the more educated and skilled are still more pronounced in more technologically advanced industries. This is in line with the notion, like much of the evidence based on industry demand shifts in the 1970s and 1980s, that technology is key to changes in labour market inequality.
The UK economy
Authors: Kneller Richard , Young Garry
Published: March 2007

Over the past three months, the good news about the economy has outweighed the bad and the chance of a very steep recession has receded. The widespread gloom that was evident in the autumn has partly lifted. This is most apparent in equity prices, which are now at record levels. But survey evidence is also beginning to suggest that firms and households are more confident than they were, especially with regard to their own situation.
Fiscal report
Authors: Young Garry
Published: March 2007

Government borrowing has fallen sharply over recent years as tight expenditure control has been combined with buoyant revenue. It now appears likely that the budget will be in surplus in the current fiscal year, with the Golden Rule clearly met. A decline in the deficit has been one of the key objectives of fiscal policy for a number of years. Indeed the Financial Statement and Budget Report (FSBR) of November 1994 projected a £1 billion surplus in 1998–99, although several policy measures have had to be implemented since then in order to achieve it.
The distributional effects of education expenditures
Authors: Biggs Michael L. , Dutta Jayasri
Published: March 2007

We evaluate the long-run distributional effects of cuts in the public expenditure on education. The article simulates a dynamic model of the earnings distribution. Earnings of individuals differ because of differences in innate ability, and additionally if their education levels differ. We model a dual system of education as in the UK or US, where the state finances public education by taxation. Parents may choose to educate their children privately by spending more. Using parameter values estimated by other researchers for the UK, we evaluate the likely long-run impact of changes to education expenditures. These estimates suggest that the long-run impact of modest changes to public education expenditures on the inequality of earnings are likely to be substantial.
Properties of the fundamental equilibrium exchange rate in the Treasury model
Authors: Church Keith B.
Published: March 2007

This article calculates the equilibrium real exchange rate for the UK economy. The long-run trade and supply side relationships from HM Treasury's model are used to estimate the level of the real exchange rate consistent with the UK economy growing at its ‘natural’ rate while achieving a sustainable current account position. The model shows that the real exchange rate associated with macroeconomic equilibrium lies well below the actual rate for most of the 1990s. This result has important implications for possible UK participation in the single European currency as, once the nominal exchange rate is fixed, overvaluation can only be corrected by holding UK inflation lower than that elsewhere. Achieving this may be costly in terms of jobs and output.
Texture and Culture: Cohesion as a Marker of Rhetorical Organisation in Arabic and English Narrative Texts
Authors: Mohamed Ayisha H. , Omer Majzoub R.
Published: March 2007

This paper claims that the differences at the cultural level between the Arabic-speaking and the English-speaking communities have a direct effect on the rhetorical organisation of Arabic and English texts as evident in the different ways in which cohesive devices are used. It is suggested that the two speech communities differ along the following cultural dimensions: oralised v. literate, collectivism v. individualism, high-contact v. low-contact, and reader-responsible v. writer-responsible. In order to test the influence of these cultural differences on the use of cohesive devices on written texts produced in the two languages, translationally-equivalent parallel texts comprising three Arabic short stories and their English translations, as well as a contextually-equivalent parallel texts consisting of three Arabic short stories and three English short stories (unrelated by translation) were analysed in terms of the cohesive devices that they used. This analysis revealed that Arabic and English use different cohesive patterns. Arabic cohesion is characterised as context-based, generalised, repetition-oriented, and additive. In contrast, English cohesion is described as text-based, specified, change-oriented, and non-additive. It is argued that the cultural differences between the two speech communities are directly responsible for the different use of cohesive devices in the two languages.