‘Fine-tuning’ can be defined as frequent discretionary adjustments to policy instruments. This article attempts to isolate this issue from a multiplicity of criticisms directed at UK economic policy-making. The attack on fine-tuning itself by the New Cambridge and the Manchester monetarist schools is shown to be connected essentially with the view that the economy is stable (i.e. returns to equilibrium in the absence of discretionary intervention). Nevertheless, even if the economy is stable, optimal control theory suggests that policy adjustments could be desirable, essentially because they could, at least in principle, speed the return to equilibrium. A more fundamental question concerns the way in which the private sector form their expectations; if they are ‘rational’, that is based on information at least as good as the authorities', then the grounds for discretionary intervention by the authorities are greatly diminished. These issues all require further empirical investigation.

Since our last forecast, the level of sterling and its future prospects have changed dramatically, with the effective rate rising by around 10 per cent. Early signs of a shift in sentiment towards sterling could be seen in the Autumn, with the rate against the D-Mark rising from 2.31 at the end of August to 2.46 at the end of October with smaller increases against the other currencies. At that time it was not clear whether the rise would be sustained. Now, towards the end of January, sterling stands at 2.70 against the D-Mark and 1.66 against the dollar, respectively 17 per cent and 6½ per cent higher than at the end of August.

The National Institute was founded in 1938, after a first initiative by Sir Josiah Stamp in the early 1930s. Stamp, who was the President of the London Midland and Scottish railway, had been connected with a Rockefeller Foundation scheme to provide fellowships in the social sciences; he became convinced that a wider attack was needed on the problem of financing the social sciences in Britain and his objective became the development of a central unit, of British origin, with funds under its own control. This would supplement and replace the help given by the Rockefeller Foundation (then the main source of research funds in the British social sciences) and develop an increasingly large research effort in economics and related subjects. Stamp made known his views and with the support of a number of prominent academics, in particular William Beveridge, Director of the London School of Economics; Henry Clay, Economic Adviser to the Bank of England; and Hubert Henderson, Secretary of the Economic Advisory Panel, began to search for British financial support.

This article looks at the likely future trends in home demand for four major electrical appliances—television sets, refrigerators, washing-machines and vacuum cleaners. The sales of all four have risen fast in the last decade (table 1, chart 1)—by an average of 16.5 per cent a year, taking all four together, compared with 2.2 per cent for total consumer demand.

Before 1914 long-term price stability was confidently expected in the UK. The typical yield then of 3 per cent per annum on long-term UK government bonds can be compared with the 4 per cent per annum on government index-linked bonds at end-1992. Inflation has made conventional long-term Government bonds riskier, and it is estimated that the real expected yield on these was about 5 per cent per annum at end-1992. Estimates are also provided for years in between, and for expected real returns on equities, and for the US, and these may surprise some. As estimated, expected real long-term UK government conventional bond yields were mostly at or above 4 per cent per annum. As bonds became relatively more risky, the risk premium on equities came down and is currently quite small, so that the cost of equity capital has not risen as has the cost of government conventional bond borrowing. In the absence o f a prolonged world depression, it seems likely that current expected real long-term interest rates will not fall, and could go higher.

The Reddaway Report on the distributive trades argued that the imposition of SET had favourable effects upon productivity in retailing. On the face of it the reduction and ultimate abolition of the tax could be expected to be followed by correspondingly large adverse productivity effects. For a number of reasons, however, we doubt whether such an inference is justified.

Through its quantitative easing programme the Bank of England has looked to manage the supply of nominal UK government securities in order to lower interest rates. In doing so it has removed more than 25 per cent of the overall supply of those securities from the publicly accessible market. The benchmark New Keynesian model suggests this should only have an impact on interest rates insofar as it affects expectations of future policy rates, whilst alternative theoretical frameworks imply a direct effect of changes in supply onto yields. Our aim is to test for the existence of these potential transmission mechanisms. We find empirical evidence to support the existence of both channels. Our analysis suggests the Bank's quantitative easing programme reduced yields by around 25 basis points through the supply channel alone. Importantly, we find that such supply effects have remained significant in recent years, suggesting that as quantitative easing is unwound the increase in publicly available supply will put upward pressure on interest rates. Lastly we highlight the monetary-fiscal interaction inherent in our result and discuss some of the issues it raises for policymakers.

Since May 1997, when the Bank of England was given operational independence to set monetary policy, the Monetary Policy Committee (MPC) has been responsible for setting short-term interest rates to ensure that the Government's inflation target is met. The target is currently 2.5 per cent and the target measure is the Retail Price Index excluding mortgage interest payments (RPIX). If RPIX inflation deviates more than 1 per cent from the central target, the Governor of the Bank of England is expected to provide a written explanation to the Chancellor of the Exchequer as to why the inflation target has been missed.

The global recession has driven a surge in the number of unemployed people across the world. The ILO estimates that global unemployment in 2009 will be some 29–59 million higher in 2009 than it was in 2007, a rise of 16–33 per cent. After taking into account global population projections, this points to a rise in the global unemployment rate of 0.8–1.7 percentage points. A rule of thumb that is often used to relate unemployment to output suggests that a decline in GDP of 2–3 per cent is associated with a 1 percentage point increase in the unemployment rate (see for example Knotek, 2007). Known as Okun's rule of thumb, these estimates are based on a simple regression of the percentage change in output against the percentage point shift in the unemployment rate. These estimates vary across time and across countries, and obviously omit important factors that determine potential output. Nonetheless, the framework provides a convenient way of comparing current labour market developments with behaviour in the recent past. In figure 1 we illustrate the relationship between GDP growth and the change in the unemployment rate in the OECD as a whole, using quarterly data from 1988Q2 to 2008Q3.

For a large number of countries, we augment the specification of import demand in NiGEM by accounting for different import contents of individual expenditure components. Three examples illustrate that these changes have important implications for model outcomes. In the case of the recently enacted US tax reform and in a ‘hard landing’ scenario for China, spillovers become more pronounced while the domestic effects turn out more muted than in the default specification. The reverse is true for the ramifications of a public investment push in Germany. Hence, we believe that our add-on to NiGEM can be a useful tool for robustness exercises, in particular for spillover studies.

The EU established an early warning system by introducing the Macroeconomic Imbalance Procedure (MIP) in the wake of the recent recession. Nevertheless, it has been found by some authors to be rather vague when launching the Excessive Imbalances Procedure. Performed analysis reflects on such views and treats the MIP indicators as a system while assessing the significance of all particular variables separately. This assessment was accomplished by applying a multivariate unbalanced logit model, utilising all 14 MIP headline indicators, using time horizons ranging from one to three years before crisis, which was represented by periods with output gap lower than negative 2 per cent. The approach was confronted with the estimates of a linear probability model to provide an idea about the robustness of the results. In the short term, activity rates, youth unemployment rates and private sector debt are the best performing indicators, complemented by current account balances in the long term.

With a view to raising the attainments of pupils at the early stages of their schooling, detailed recommendations (‘strategies’) for teaching numeracy and literacy have been issued by the Department of Education and Employment. Among the important recommendations (clearly stated in the Preliminary Report of the National Numeracy Task Force) are that, in the central and greater part of each lesson, the children in a class are to be divided into a number of sub-groups according to their ability. Some reliance for the success of this recommendation has been placed in official circles on a Canadian research study (a ‘meta-analysis’) summarising a great many earlier studies; the present article argues that the Canadian study was seriously flawed, that in reality such grouping of children within a class is often likely to be to the detriment especially of low-attainers (for example, summer-born boys), to lead to an increased disparity of attainments within the class, to a more difficult task for the teacher, and to a lower rate of progress by the class as a whole.

The recent crisis has underlined the importance of the interaction of financial innovations and the housing market. We consider five major innovations relevant to housing finance. These are (i) mortgages; (ii) specialised housing finance institutions; (iii) government interventions in housing finance in the US during the Great Depression; (iv) covered bonds; and (v) securitised mortgages. The history of these innovations and their positive and negative aspects are discussed. Future innovations to help the stability of the housing market are also suggested.

In December, 1993, the round of multilateral trade negotiations known as the Uruguay Round was at last successfully concluded, seven years after it was launched at Punta del Este in Uruguay and three years later than it was scheduled to finish. This was the eighth and, almost certainly, the last round of GATT which is likely to take place on a similar basis. Up until the last minutes, it was uncertain whether any agreement would emerge. The final agreement was formally signed by the contracting parties at a gathering of Heads of State at Marrakech, Morocco and amidst great fanfare in April 1994. On January lst, 1995, the provisions of the Agreement took effect, including the establishment of the World Trade Organisation (WTO) as the successor to the GATT.

Sick pay has been debated recently in several economies, including the US, Germany and Sweden. There is, however, little academic discussion of the nature of sick pay, or of how it should be structured. This paper clears the ground for such a discussion in two ways; it identifies a conceptual difference between the North American model, rooted in job protection, and the European model, which is predominantly a form of social insurance. Secondly, it argues that experience-rated sick pay provided by employers avoids the classical problems of insurance markets. US-style paid sick leave is an example of such a scheme.

Over the past five years, there have been widespread claims — not only that there is a ‘new economy’ but that a new economy requires new economics. This article reviews the claims of this kind which have been made in three principal areas — in the measurement of economic statistics and in macroeconomic management, in company and stock market valuations, and in the nature of competitive advantage and the origins of business success. In each of these areas, it finds little basis for believing that revolutionary, rather than evolutionary, change is required. Indeed the application of well established economic principles and concepts might have saved investors, commentators, and those whose job it is to manage the economy, from costly mistakes