From time to time the Institute has published in the Review assessments of its economic forecasts based on statistical analysis of their relation with the outturn data. The most recent examples are Savage (1983) for GDP forecasts and NIESR (1984) for inflation. A more extensive analysis has now been carried out covering quarterly forecasts over the period from 1968 to 1991 for a range of economic variables. The full results are reported in Pain and Britton (1992). This note summarises some of the main findings.

The major controversies over alternative strategies for the UK economy are surveyed and evaluated in a non-technical manner, concentrating on the positions of three groups prominent in economic forecasting and policy analysis—the National Institute, the London Business School Centre for Economic Forecasting and the Cambridge Economic Policy Group.

The aim and scope of this paper is to isolate the effects of population ageing in the context of potential Scottish independence. A dynamic multiregional Overlapping Generations Computable General Equilibrium (OLG-CGE) model is used to evaluate the two scenarios. The status quo scenario assumes that Scotland stays part of the UK and all government expenditures associated with its ageing population are funded on a UK-wide basis. In the independence scenario, Scotland and the rest of the UK pay for the growing demands of their ageing populations independently. The comparison suggests that Scotland is worse off in the case of independence. The effective labour income tax rate in the independence scenario has to increase further compared with the status quo scenario. The additional increase reaches its maximum in 2035 at 1.4 percentage points. The additional rise in the tax rate is non-negligible, but is much smaller than the population ageing effect (status quo scenario) which generates an increase of about 8.5 percentage points by 2060. The difference for government finances between the status quo and independence scenarios is thus relatively small.

The EU´s falling share in global manufacturing has fuelled concerns about an overall loss of EU competitiveness, in particular vis-à-vis China. We analyse the empirical evidence underlying these concerns by applying a newly developed decomposition technique to global input-output data spanning the years 2000 to 2014. Our results confirm the diminishing role of the EU in manufacturing value chains, but also show that this is mostly, by nearly 75 per cent, a consequence of the geographical and sectoral reallocation of global demand, reflecting the lower economic growth in the EU relative to the rest of the world. Still, the other almost 25 per cent of the EU’s loss of global share is explained by its lower participation in manufacturing value chains, which confirms a downturn in EU competitiveness. By extending the analysis to individual manufacturing activities we show that this general trend is more pronounced for low-tech (e.g. textiles) than high-tech sectors, with pharmaceuticals emerging as the most resilient EU industry. Policy concerns appear to be most warranted for electronics, a key sector for which the EU´s global share fell even more than for overall manufacturing, without evidence that EU value added from upstream service inputs could significantly mitigate this trend.

China and the United States are the two largest emitters of greenhouse gases, making them pivotal players in global climate negotiations. Within the coming decade, however, India is set to become the most important counterpart to the United States, as it overtakes China as the country with the most at stake depending on the type of global burden-sharing agreements reached, thus becoming a member of the ‘Climate G2’. We create a hypothetical global carbon market based on modelling emissions reduction commitments across countries and regions relative to their marginal abatement costs. We then analyse net financial flows across a wide range of burden-sharing agreements, from pure ‘grandfathering’ based on current emissions to equal-per-capita allocation. Among the four largest players – the United States, the EU-27, China, and India – it is China that would currently be the largest net seller of emissions allowances in all but the grandfathered scenario. The United States would be the largest net buyer. However, India is poised to take China’s position by around 2030. That leaves the United States and India as the two major countries with most to gain and lose, depending on the type of climate deal reached.

During the last eight years there have been dramatic increases in the world price of oil. However, the incentive to use less energy comes from increases in the ‘real’ prices paid by consumers for fuel and the increases in these prices have been far smaller. This note examines the changes since 1973 in real prices for different fuels in different sectors in the UK and compares these price movements with those in some other Western developed countries.

This article examines the scale and nature of the impact of 1990s migration on the populations of the eight largest conurbations in Britain, with particular reference to their labour markets. It shows that all these cities have been performing more strongly in demographic terms than in the 1980s, but London has seen by far the biggest upward shift in rate of population change. The change has come about principally due to increased net immigration from overseas, for though the urban exodus to the rest of the UK was at a low point at the beginning of the decade, it has subsequently returned to its long-term of average of 90–100,000 a year net loss. The article goes on to look — in as much detail as the available data allows — at the composition of both within-Britain and overseas migration, focusing especially on its industrial and occupational characteristics. The ‘net urban exodus’ is found to be skewed towards the more skilled and generally wealthier sections of the population, especially in the case of the provincial conurbations. Similarly, the net gains from mainstream international movements are biased towards more qualified people, notably students but also professional and managerial workers, helping to some extent to offset the effects of the urban exodus. There is, however, no detailed information about the asylum seekers and ‘visitor switchers’ that are now contributing a significant share of overall net immigration, especially for London, and it is also extremely difficult to gauge the effects of emigration on cities. Given the importance of migration for British cities in the 1990s and projected for the next two decades, there is an urgent need for the improvement of data sources on migrants' characteristics and for the more systematic analysis of the migration component of labour market change.

The article connects two streams of recent research on the financial sector. The first is the regulation literature, which emphasises the central role of incentives in the financial sector. It points out that the challenge of financial sector regulation, highlighted by the global financial crisis, is to align private incentives with public interest without taxing or subsidising private risk-taking. The second stream of research relates to financial structures and examines the mix of financial institutions and financial markets in an economy. It finds that, as economies develop, services provided by financial markets become comparatively more important than those provided by banks. The article brings these two streams together, pointing out that — as financial systems develop from bank-based to market-based — a traditional regulatory approach that relies on banking ratios becomes less effective. There is thus a greater need for properly monitoring and addressing the underlying incentive weaknesses in market-based systems.

We use the United Kingdom Labour Force Survey to estimate the returns to schooling and job-specific experience in sixteen different industry sectors over the period 1994-2001. Next, assuming skill levels are fixed, we assess the marginal effect on these returns of the capital intensity of production and the ICT intensity of capital. Our results indicate that in the UK, over the period 1994-2001, the rising ICT intensity of capital was associated with a rise in the return to schooling, and a reduction in the return to job-specific experience.

In general the importance of consumer goods in world trade is declining. But this is not true of durable consumer goods. From 1937 to 1950 this group held its share of total trade in manufactured goods at about 7 per cent; from 1950 to 1957 the figure rose to 8 per cent; and in 1958—mainly because of the sharp rise in shipments of cars from Europe to the United States—it went up to nearly 9 per cent (table 9).

The house price and lending boom of the 2000s is widely considered to be the main cause of the financial crisis that began in 2007. However, looking to the past, we find a similar boom in the late 1980s which did not lead directly to a global systemic banking crisis – there were widespread banking difficulties in the early 1990s but these were linked mainly to commercial property exposures. This raises the question whether the received wisdom is incorrect, and other factors than the housing boom caused the crisis, while macroprudential policy is overly targeted at the control of house prices and lending per se.

Accordingly, in this paper we compare and contrast the cycles in house prices over 1985–94 with 2002–11. There are more similarities than contrasts between the booms. Stylised facts include a similar rise in real house prices where booms took place, and a marked rise in the real mortgage stock along with real incomes. The aftermath periods are also comparable in terms of house price changes. Econometrically, determinants of house prices are similar in size and sign from the 1980s to date.

There remain some contrasts. Leverage rose far more in the later episode and did not contract in the aftermath. Mean reversion of house prices is greater in the earlier period. The earlier boom period showed differences with average house price behaviour which was not mirrored in the most recent boom and inflation was higher. Despite the contrasts, on balance we reject the idea that the recent boom was in some way unique and hence the key cause of the crisis. There is a need for further research to capture distinctive structural and conjunctural factors underlying the recent crisis which differ from the earlier boom and some suggestions are made.

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.

This note analyses the price changes of some 470 manufactured products in five recent years. They were taken as a sample from the price quotations on which the Board of Trade bases its wholesale price index for manufactured products. Since the conclusions for the engineering industry are rather different from those of other industries, the two groups— engineering and non-engineering—are discussed separately. Food, drink and tobacco prices are excluded throughout.

This paper evaluates claims that European productivity growth has been undermined by weak competition and excessive regulation and taxation. The argument has some validity in the context of the information and communications technology (ICT) revolution which has placed a greater premium on flexibility. The UK has been well-placed to benefit from ICT but experiences a productivity gap reflecting historically-low investment combined with high employment of low-productivity workers. Rapid Irish growth has benefited greatly from low corporate taxation but the massive contribution of ICT production to productivity growth suggests it is a special case not a role model.

This paper will present a set of simulation exercises, and discuss some of the methodological issues arising from the new National Institute Model 8. This model has been developed from earlier models used at the National Institute and has much in common with those models. In particular, it adheres to a traditional income-expenditure framework and is, in broad outline, a Keynesian model. The new feature of Model 8 which distinguishes it from its predecessors is the explicit widespread treatment of expectations. Recognition of the importance of expectations in macroeconomics is widely disseminated and much attention has been given recently in the econometric literature to the modelling of expectations. Model 8 now includes explicit expectations terms in the following sectors: employment, stockbuilding, investment, wage formation, the exchange rate and the demand for money. The details of individual equation estimation and specification may be found in Hall and Henry (1985a) and will not be given here. In the estimation process much use has been made of the rational expectations hypothesis, while in the full model implementation expectations may be formed either consistently or on the basis of explicit expectations models.