Now that the budget deficits in the Euro Area are approaching balance, the Stability and Growth Pact (SGP) looks like a largely non-constraining institutional framework with little impact on national fiscal policies. This article challenges this view and argues that the implementation of the SGP ‘at cruising speed’ is faced with a number of outstanding issues: safeguarding the automatic stabilisers under the SGP; coping with the consequences of the asymmetric nature of the SGP for the co-ordination of macroeconomic policies; and ensuring the long-run sustainability of public finances. It concludes that enlarging the scope and enhancing the credibility of the stability and convergence programmes to become a true instrument of fiscal policy coordination in the Euro Area would be a first step in lifting the uncertainties surrounding the implementation of the SGP.

In 1977 the European Commission published the report of a Study Group which it had set up, under my Chairmanship, on ‘The Role of Public Finance in European Integration’. This is sometimes called the ‘MacDougall Report’, which does scant justice to my six European colleagues, our two consultants from the United States and Australia, and our excellent Secretariat.

This paper considers the evolution of the UK's pension programme in the light of various stated rationales for public intervention. It argues that the publicly-provided (tax-financed) pension programme has gone through four distinct stages since 1946. It examines some of the issues that have arisen in the context of private pension provision in the UK, both in the form of so-called ‘defined benefit’ and ‘defined contribution’ pension plans, as well as individual purchases of annuities.

This article analyses the trend of earnings in the public and private sectors of the British economy from 1950 to 1975. It was found that public and private sector earnings moved closely together throughout the 1950s and 1960s but then diverged considerably in the early 1970s, with public sector earnings moving ahead of private sector earnings in an unprecedented fashion in 1974 and 1975; given the earlier stability in relative earnings, this movement might be temporary. There was a significant difference in the cyclical behaviour of the two series with public sector earnings generally increasing faster than private sector earnings during the downswing and vice versa during the upswing; this finding is consistent with the lesser exposure of the public sector to market pressures. Incomes policy does not appear to have affected relative earnings in any systematic way.

This article describes the current versions of six leading macroeconometric models, focusing on their treatment of several current policy issues, namely the role of the housing market, the implications of ERM membership and, more generally, the relative effectiveness of fiscal and monetary policy. Differences in the modelling of the housing sector and the exchange rate are important in explaining differences in overall model properties which are revealed in standard policy simulations. Monetary policy is more potent than in previous versions of the models, which has important implications for the conduct of macroeconomic policy under ERM membership.

Korea has been a forerunner in incorporating macroprudential policies to mitigate the vulnerabilities from currency crises that can turn into a more generalised liquidity crisis. This paper examines longer-term design issues for a more resilient and stable financial system that could be expected to complement the existing macroprudential measures in achieving a more stable financial system. In particular, the paper examines the rationale and mechanics of a new public financial institution, provisionally called the Exchange Stabilisation and Guarantee Corporation (ESGC) whose main role is to buy dollar forward positions from Korean exporting companies who wish to hedge the currency exposure from long-term export orders. The ESGC is intended to mitigate the risks arising from the reliance on the role of the banking sector in providing currency hedging services to exporters. Rapid growth of short-term foreign currency denominated debt has been the result of banks receiving forward dollar sales by exporters, and then hedging the long dollar position by borrowing short in dollars. A public institution that can buy dollars forward, but which is designed so that there is no need to hedge by taking short dollar debt, can mitigate the rapid increase in short-term dollar debt in booms.

Official price indexes may overstate (or understate) inflation for a number of reasons. These include substitution bias, outlet bias, failure to allow properly for quality change, and failure to allow for new goods. This note finds that substitution and outlet bias are probably not significant sources of error in the UK. The other two sources most probably do lead to significant overstatement, but the size of the upward bias cannot at the moment be quantified.

‘Since, with technological advance, the quality of products tends to improve, the estimates of consumers' expenditure tend to understate the true growth in standards of consumption’. (CSO a 985, p. 72).

‘The Producer Price Indices … make some allowance for changes in models and specifications when these can be identified in terms of changes of cost or in technical performance…. [Allowances for quality change] are necessarily somewhat rough and seldom fully satisfactory’. (CSO 1985, p. 40, emphasis added).

This article examines the conduct of fiscal policy since 1974. It is in two parts. The first contains a chronological narrative of what policy-makers did during the period. It describes, in rapid summary, the major policy developments and the setting within which policy formation evolved. The style of part I is more journalistic than scientific, the intention being to convey some sort of impression of what things were like at the time—of the pressure of immediate problems and the unexpectedness of many economic developments—an impression which would perhaps be lost in a more analytical and abstract treatment. The second part is concerned with the more technical task of measuring the effects of policy changes. It emphasizes the leverage of fiscal instruments—the first impact' of policy upon the level of demand—rather than the more indirect effects on the balance of payments and inflation, important though these may have been as target variables.

This article traces the course of world commodity prices back to the middle of the 19th century and attempts to assess the changes in their purchasing value by deflating them by the export prices of manufactured goods. The purchasing power of commodity prices was in decline over long periods but they usually regained their earlier real value, or improved on it, in powerful upsurges of which the 1972-74 boom was the most recent; it was also unique in peacetime and, though with fluctuations, the purchasing value of commodities has since remained at a relatively high level.

This article argues that an effective way to analyse the macroeconomic effects of business-to-business electronic commerce is to regard it as a decline in the cost of information to producers. Calculations based on input-output tables and the IMF's Multimod macroeconomic model show that current estimates of such savings translate into about a 5 per cent long-run increase in output in the major industrialised economies. In the medium term, although the deflationary effects of the shock would provide greater room to central banks to keep interest rates low, the simulation results also hint at short-term inflation risks if current demand outstrips supply in anticipation of higher future incomes.

The recent Sub-Prime crisis has prompted a close focus on the causes of financial instability as well as the issue of whether it can be prevented. There is a growing realisation that the Sub-Prime crisis, although having some important unique features, also had a number of generic aspects in common with earlier financial crises, of which a large number have been seen in recent decades. Accordingly, the crisis has prompted a debate about macroprudential policy, which focuses on the financial system as a whole, treating aggregate risk as endogenous with regard to collective behaviour of institutions. Our survey shows that a great deal of progress has been made in ‘macroprudential surveillance’ and related research on causes and predictors of crises. Much less progress has been made in ‘macroprudential regulation’, the design and implementation of policies to prevent or mitigate threatened crises.

This article presents estimates of the contribution of physical capital to explaining labour productivity differences between Britain and four of her major competitors, the United States, Germany, France and Japan. The paper uses a standardised method to estimate capital stocks in the five countries. It presents arguments why this may be preferable to comparing official capital stock figures since the latter are sensitive to differences in measurement techniques used by the statistical offices. In the aggregate economy differences in physical capital are important in explaining labour productivity levels in Britain relative to the United States, Germany and France but cannot explain Britain's labour productivity advantage over Japan. In manufacturing Britain's lower capital per unit of labour also helps explain her lower labour productivity levels relative to all four countries but the contribution of capital is generally lower in manufacturing than for the aggregate economy. For both the aggregate economy and manufacturing differences in capital growth rates help explain Britain's productivity growth performance in the past three decades relative to the United States and Japan but have little explanatory power relative to Germany and France.

In May 1984 unemployment was, officially, 3.1 million. Critics of the count put the true figure at between 1.7 million and 4.4 million, depending on their point of view. In Section 1 I examine what the statistics do and do not measure and highlight recent changes in coverage and counting. Estimates of the long-run rate of unemployment are given in Section 2. These estimates imply that injudicious macroeconomic policy accounts for a large fraction of current unemployment. In Section 3 Britain's unemployment is put into an OECD context. It is shown that our comparatively high level of unemployment is not due to problems with the labour supply or lack of adaptability on the part of the workforce. Finally, Section 4 addresses the question ‘where are the new jobs coming from?’ There is general agreement that manufacturing will not be a source of net new jobs, but private services are unlikely to generate jobs on the scale required to make a dent in unemployment.

Financial supervision focuses on the aggregate (macroprudential) in addition to the individual (microprudential). But an agreed framework for measuring and addressing financial imbalances is lacking. We propose a holistic approach for the financial system as a whole, beyond banking. Building on our model of financial amplification, the financial cycle is the key variable for measuring financial imbalances. The cycle can be curbed by leverage restrictions that might vary across countries. We make concrete policy proposals for the design of macroprudential instruments to simplify the current framework and make it more consistent.

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.

This article explains the role of evidence in determining the recommendations made by the Low Pay Commission (LPC) for the National Minimum Wage (NMW). First, it sets out the process of recommending the minimum wage including the role of evidence. Second, it summarises the evidence available on the impact of the minimum wage before discussing how that evidence has informed the recommendations for the adult rate of the minimum wage in the LPC's reports. It concludes by assessing the extent to which the NMW might be regarded as a success and considers whether the recent financial crisis will alter the evidence-based approach so far adopted by the LPC.

It is now looking increasingly plausible that, at some point between the middle of 1997 and the beginning of 1999, a number of EC Member States (perhaps even a majority) will move to the final stage of Economic and Monetary Union. The macro economic consequences of EMU and the costs and benefits ofparticipating are already the subject ofactive and extensive academic analysis. Very little attention has so far been given to the question of how a two-tier EMU, with only some EC countries prticipating in Stage 3, would function and what implications there might be for those remaining in Stage 2.

The purpose of this Note is to highlight some of these issues, which will need to be studied and understood in much greater depth before a decision is taken. It looks at the legal and institutional framework set out in the Maastricht Treaty, the relevant experience of nearly-fixed European exchange rates from 1987 to 1992 and the economic and political implications of particular country configurations in a two-tier EMU, concluding that mutually satisfactory management of such a relationhip will require greater political will and co-operative spirit than has been in evidence so far.

It has been claimed using the concept of the Index of Sustainable Economic Welfare (ISEW) that there has been an absolute decline in sustainable living standards in the UK since the mid-1970s. Revisions to ISEW are proposed to make it more nearly a measure of utility-based real national income. In particular, ISEW should be revised to take account of much-improved life expectancy. Implementing any of the suggested revisions reverses the finding of absolute decline while implementing all of them results in a growth rate higher than that of real GDP per head in the national accounts.