In recent years considerable attention has been paid to the condition of labour markets in Europe. The recession of the early 1990s saw unemployment reach a post war high in a number of European countries. As Chart 1 shows unemployment has shown a secular upward trend in Germany, Italy and most notably, Spain. Real wage growth was also slower in the 1980s and 1990s than it had been in the 1970s (Chart 2).

As long as all interest rates move in tandem – including the rate of return on paper currency – economic theory suggests no important difference between interest rate changes in the positive region and interest rate changes in the negative region. Indeed, in standard models, only the real interest rate and spreads between real interest rates matter. Thus, in most respects, negative interest rate policy is conventional. It is only (a) what needs to be done with paper currency, (b) difficulties in understanding negative rates or (c) institutional features interacting with negative rates that make negative interest rate policy unconventional.

This article analyses the properties of five major macroeconometric models of the UK economy in the light of the current debate over the setting of monetary and fiscal policy instruments. The broad objectives of current policy—sound public finances and low inflation—are reflected in a common operating environment for the models, with feedback rules for income tax and interest rates. Five standard simulation experiments demonstrate the consequences of these policy choices. The models disagree on several implications of this new policy framework, a critical parameter being the speed with which financial imbalances are rectified and inflation targets are met.

For most of the postwar period both labour and total factor productivity growth in the EU was higher than in the US. The 1990s witnessed a change in this trend with the US experiencing higher growth rates for the first time in decades. This was partly due to the end of catch-up growth as many larger EU Member States had reached US levels by the beginning of the decade with also some evidence of a higher ‘New Economy’ impact in the US. The productivity record of the UK was poor relative to its major European competitors throughout most of the postwar period, although this relative decline appears to have come to an end. This paper presents figures on relative productivity for the total EU and individual Member States in the 1990s. Both postwar convergence and trends in the 1990s are discussed in terms of a number of factors which result in the emergence of differences across European countries. These include the skill composition of the workforce, the rate of introduction of new technology and the institutional environment in which firms operate. The latter include the stability of the macroeconomic environment and aspects of competition and regulation. The paper concludes that trends in productivity largely reflect long-term structural aspects but that EMU membership might have a small favourable effect on UK productivity.

There is renewed interest in levelling up the regions of the UK. The combination of social and political discontent, and the sluggishness of key UK macroeconomic indicators like productivity growth, has led to increased interest in understanding the regional economies of the UK. In turn, this has led to more investment in economic statistics. Specifically, the Office for National Statistics (ONS) recently started to produce quarterly regional GDP data for the nine English regions and Wales that date back to 2012Q1. This complements existing real GVA data for the regions available from the ONS on an annual basis back to 1998; with the devolved administrations of Scotland and Northern Ireland producing their own quarterly output measures. In this paper we reconcile these two data sources along with UK quarterly output data that date back to 1970. This enables us to produce both more timely real terms estimates of quarterly economic growth in the regions of the UK and a new reconciled historical time-series of quarterly regional real output data from 1970. We explore a number of features of interest of these new data. This includes producing a new quarterly regional productivity series and commenting on the evolution of regional productivity growth in the UK.

We use eleven-plus test and appeals data obtained from a large local authority to explore how the process of admission to grammar schools produces such a strong social gradient in entry rates. We look at disparities between eleven-plus and subsequent SATs scores by social background for each element of the test. We then turn to whether the headteacher assessment panel seems to help or hinder poor students on the cusp of passing. Our analysis has implications for how to improve access to grammar schools for those from disadvantaged families.

This article summarises the 2010–15 Coalition government's education policy, contrasting their attempts to liberalise education markets with the desire to impose a highly traditional curriculum. The government's quite radical reforms have not been easy to implement, taking place against severe budgetary constraints and a minority Coalition partner with ambitions to improve the educational outcomes of children from low income families. It could be argued that the reforms have been successfully implemented, and there is little prospect of wholesale reversal by any future government. However, their combative approach to reform leaves a demotivated teacher workforce, a possible impending teacher recruitment crisis as the economy recovers, and a tangled web of accountability structures that will need to be resolved.

Using a unique data set from the US to examine the association between employment stability and childcare stability, we find that childcare use is fairly stable for current and former welfare recipients. In addition, although childcare instability contributes to employment instability, it does not appear to be the major reason women leave their jobs. In this case, employment retention programmes in the US, while not losing focus on childcare issues, should also address other barriers to keeping jobs, such as limited education and lack of work experience.

Over the years a large number of empirical studies have investigated the effects of monetary factors on various forms of private expenditure. This article surveys the evidence which has accumulated with a view to throwing some light on the basic issue of how, and how strongly, monetary policies influence real economic activity in this country. The evidence is varied and often contradictory and only tentative conclusions can be drawn.

The level of unemployment has recently risen to a level not previously experienced during the post-war period. Most of the increase has happened in two fairly sharp movements, the first in 1966-7 and the second in 1970-1. A measure of the scale of the problem is given by the following comparison: in early 1966 the number of wholly unemployed males in Great Britain stood at a little over 200,000; and by the end of 1971 the figure had risen to over 700,000. (See chart 1, where unemployment is on an inverted scale.)

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.

This paper examines the implications of labour migration models that rely on employer sponsorship. According to UK government proposals, long-term migration into high-skilled jobs after Brexit will require workers to be sponsored by employers, while workers in low-skilled and low-wage jobs will receive short-term work permits that do not require an employer sponsor. The paper argues that choosing employer sponsorship over worker-driven routes has three key effects: it gives the government greater ability to regulate which jobs migrants fill; it gives employers more power over their workforce; and it increases the administrative burden associated with hiring workers from overseas. This implies that in high-skilled jobs, employer sponsorship is likely to improve the skill composition of labour migrants but reduce the total number of skilled workers admitted; and that in low-skilled positions the government faces a trade-off between the ability to channel workers to specific jobs (including those where employers struggle to attract workers) and the risk of increasing underpayment or exploitation.

This article challenges the conventional wisdom that price level targeting necessarily increases the volatility of inflation and economic activity. It shows that the optimal policy under commitment for a society that cares only about the variability of output and inflation involves only a limited degree of base drift. The result crucially depends on the importance of forward-looking behaviour and on the credibility of the commitments. The case for price level targeting is strengthened when the possibility of a binding lower bound on nominal interest rates is considered. This may be increasingly relevant in a low inflation environment. This justifies renewed interest on price level targets in the context of thinking through how to prevent and respond to deflationary risks.

Recent estimates suggest that the UK business cycle is closer to the Eurozone business cycle than it was in the early 1990s. This paper investigates whether this phenomenon has been accompanied by increased correlation between UK and Eurozone business cycles. Considering a range of alternative measures of the business cycle we find, using 40 years of monthly industrial production data, no clear evidence for a sustained increase in correlation between UK and Eurozone business cycles. Instead, in the 1990s, the correlation between UK and Eurozone business cycles has been volatile relative to historical levels. It is only recently, i.e. since 1997, that the UK has become more correlated with the Eurozone, although the level of correlation is lower than against non-Eurozone countries. Importantly, the strength of these relationships is sensitive to how the business cycle is measured. Care should therefore be exercised when using business cycles estimates to test the relationship between UK and Eurozone business cycles.

There is increasing recognition that prior to the global financial crisis financial regulation had lacked a macroprudential perspective. There has since been a strong effort to make a new macroprudential orientation operational, including through the establishment of new macroprudential authorities or ‘committees’ in a number of jurisdictions. These developments raise — and this paper explores — the following three questions. First, what distinguishes macroprudential policy from microprudential policy and what are its key tasks? Second, what powers should be given to macroprudential authorities and what should be their mandate? Third, how can governance arrangements ensure that macroprudential policies are pursued effectively? While arrangements for macroprudential policy will to some extent be country-specific, we identify three basic challenges in setting up an effective macroprudential policy framework and discuss options to address them.

This note examines the role of macroeconomic models in the policy design process. It discusses some of the general issues that need to be addressed if macroeconomic models are to make an important contribution to the policy debate. More topically, it illustrates the role that can be played by using policy optimisation techniques on the National Institute UK model to examine some of the macroeconomic policy options currently facing policymakers.

The twin forces of investment in new and scrapping of old equipment are traditionally supposed to play a large part in explaining productivity growth. Scrapping cannot in practice be observed directly but can be inferred by estimating a vintage capital model. When this is done it is found that these forces do indeed have a substantial role to play in explaining differences between industries in productivity growth rates in the 1960s and 1970s, but not in the 1980s. The productivity improvement observed in most industries in the 1980s must therefore be ascribed largely to forces other than new investment and scrapping.

Though it has become increasingly popular, indexation is not a new idea. As early as 1742 Massachusetts had an issue of bonds based on a few commodities and Jevons in 1875 and Marshall in 1886 advocated the use of a standard unit of purchasing power in contracts for deferred payments.

Two methods are used in the preparation of the official import forecasts in Britain. There is the detailed commodity-by-commodity approach, designed to bring in any special factors or information about particular commodities. There is also the aggregate approach, which attempts to find relationships between the volume of imports and various national expenditure series. This note describes a series of experiments conducted to investigate and, if possible, improve the second of these two approaches. It does not attempt to provide a full theory of import behaviour. It is simply concerned to find a method of import forecasting that works reasonably satisfactorily over a short period of 1-2 years.