The recent downturn in economic activity has led to large-scale revisions to debt stock projections for all major economies. In this note we look at the projected evolution of debt stocks over the next decade, compare them to our pre-crisis projections from January 2008 and put uncertainty bounds around them. Increased debt stocks may increase the costs of borrowing by governments, and they appear to be a factor behind the increase in spreads on government bonds that we have observed in Europe in the past year or so. We analyse those spreads, and suggest that each excess rise of 34 per cent of GDP in government debt issued by members of EMU might, in the medium term, raise the cost of their borrowing by up to 100 basis points. We should be careful in extrapolating this to the UK situation, but there are lessons to be learnt.

The most important government review of UK competition since Mrs Thatcher came into office has recently taken place. The review, which was announced in June 1986, was concerned with two aspects of policy—mergers and restrictive trade practices (RTP). Its conclusions were published in March 1988 in a Department of Trade and Industry (DTI) document, ‘Mergers policy’, and in a major Green Paper entitled ‘Review of restrictive trade practices policy’ (Cm 331, 1988). The proposals on RTP involve a fundamental change in policy. The new law will consider restrictive practices in terms of their economic effects upon competition and not, as at present, with the emphasis on their legal form. This reform will require new methods of operation and will be backed up by tougher powers and penalties than have hitherto been available in Britain.

This study looks at the recent development (1998–2009) in the number of years of schooling that a 6-year old can expect to attend until their 30th birthday for the EU-27 countries. All countries have seen an increase in the number of expected years of schooling, which is driven mainly by increased tertiary enrolment rates. At the same time the education gap vis-à-vis the US has been closed. The dispersion of expected length of education among EU countries has also decreased. Thus, by this measure, education among countries has become more equal. In spite of this progress, some countries will find it difficult to meet their national targets for tertiary educational attainments for 30–34 year-olds in 2020. This is largely because the tertiary education participation rates of young males have been falling behind those of females in many countries. Focussing on the tertiary educational attainments of 30–34 year-olds leaves governments with little time to pursue policies with substantial impact. It would be preferable to supplement the educational attainment target for 30–34 year-olds with an enrolment target for 20–24 year-olds.

Over the past year East Asia has featured prominently in the international debate over the widening global economic imbalances. In particular, China has attracted much attention for the nature of its currency regime and its large trade surplus. Until recently, China pursued a strict policy of tightly fixing the value of the renminbi against the US dollar and, as a result, Chinese exports have remained highly competitive while the US current account position has deteriorated markedly. A substantial widening of China's trade surplus in the first half of this year has sparked a great deal of criticism from the US regarding China's exchange rate regime. Protectionist threats from the US and growing domestic imbalances in the Chinese economy have succeeded in prompting the Chinese authorities to reform their exchange rate regime. On 21 July, Chinese authorities announced the abandonment of the longstanding US dollar peg in favour of a managed system where the renminbi is fixed against a basket of currencies. The specifics of this new exchange rate regime provide ample scope for further renminbi appreciation; however, this will be an orderly and drawn-out process dictated by both economic and market conditions.

The UK economy remains in the worst recession since the Second World War. Revisions to the official GDP numbers suggest that the economy contracted even more sharply than previously thought in the first quarter of this year: 2.4 per cent compared to the preliminary estimate of a 1.9 per cent contraction. Following the publication of our April Review, new data almost immediately suggested that the UK recession might have ended. However, the recovery of industrial production in April did not continue into May and our projections remain much as they were in April, although the quarterly profile has changed, as we can see from figure 1. The dating of the recession, according to official statistics, has also been adjusted. GDP growth rates have been revised back to 2004 (figure 1), and they now suggest that the start of the recession was the second quarter of 2008. This brings the quarterly profile of GDP growth into line with NIESR's monthly estimates of GDP which date the start of the recession as March or April 2008.

This article looks at the prospects for the British car industry in 1965 and 1970. Inevitably an article of this kind, covering home and export markets, has to put forward figures with very varying degrees of probability. Some of the forecasts—such as the forecast of British home demand-have econometric backing; other figures, such as those of the possible British share in the world export market for cars in 1970, can in the nature of things be little more than illustrative percentages. Many of the guesses will certainly be wrong; the justification for making them is that any process of planning, whether by a company, an industry, or a country, requires some assumptions about the future.

British wage costs per hour, including social charges, had—by 1974—become the lowest among the fifteen industrial countries included in the comparison in this note; this competitive advantage of British industry was however partly or entirely offset by lower labour productivity. Hourly earnings in money terms were not rising outstandingly rapidly in Britain in this period, but since consumer prices increased faster, the improvement in real earnings was slower than in most other countries.

The financial crisis that engulfed the world in 2007 and 2008 has led to a wave of re-regulation and discussion of further regulation that has culminated in the proposals from the Basel Committee as well as those in the Vickers Committee report on Banking Regulation and Financial Crises. This issue of the Review contains a number of papers on Banking Regulation, covering many aspects of the debate, and we can put that debate in perspective through these papers and also by discussing our work on the relationship between bank size and risk taking, which is reported in Barrell et al. (2011). We addressed the causes of the crisis in the October 2008 Review, and began to look at the costs and benefits of bank regulation in Barrell et al. (2009). In that paper we argued that we needed to know the causes of crises and whether the regulators could do anything to affect them before we discussed new regulations. It is now generally agreed that increasing core capital reduces the probability of a crisis occurring, and most changes in regulation that are being discussed see this as the core of their toolkit. The work by the Institute macro team in Barrell et al. (2009) and in Barrell, Davis, Karim and Liadze (2010) was the first to demonstrate that there was a statistically important role for capital in defending against the probability of a crisis occurring, and our findings were widely used in the policy community in the debate over reform.

This paper analyses the role of wealth in the National Institute model of the World Economy (NIGEM). It also addresses the issues of fiscal solvency and the rote of the government budget constraint. We start with a brief theoretical and empirical overview of wealth and consumption functions. We then describe the introduction of public sector blocks into the model and summarise our approach to the determination of wealth. The paper then reports on a set of diagnostic simulations using NIGEM. We analyse the effects of a permanent fiscal expansion and its implications. We also discuss the importance of solvency constraints on the government in the solution of a forward looking model without Ricardian equivalence. We then analyse the effects of a change in equity prices in one country relative to those in the rest of the world.

The realignment of the ERM in September, and the subsequent withdrawal of the UK and Italy from the mechanism, have caused a degree of uncertainty in the financial markets. In our last forecast we were anticipating a realignment of the lira at the end of September (National Institute Economic Review No. 141) but we expected a more orderly adjustment of exchange rates than took place. We analysed the effects of a realignment in a note in the August 1992 Review, and we expected the consequences to stimulate activity in Europe. The uncertainties surrounding the exchange-rate outlook make our main case less sanguine than it would otherwise have been. The resulting prospects for slow growth in Europe have to be combined with a modest recovery in the US and Canada and continued below capacity growth in Japan. The success of Governor Clinton in the US elections bodes well for growth in the US, at least in the short term, and this may offset the poor performance elsewhere in the OECD. However, the distinct possibility of a trade war following on from the collapse of the GATT round cannot be ignored, and such an outbreak would make our forecast much more pessimistic.

In the past three years the US dollar has been declining whilst the US current account deficit has expanded, and these two developments are clearly linked. However, the causes of the decline in the dollar and the solution to the US deficit may not be as closely related as at first may appear. The emergence of a sustained deficit does not automatically necessitate a fall in the exchange rate, and a fall in the exchange rate may not correct such a deficit. Deficits can exist if the currency moves above its sustainable real exchange rate, and a real depreciation can remove such a deficit. Deficits caused by exchange rate movements are likely to be more temporary than those that either emerge for long-term structural reasons or result from structural imbalances in the economy. A structural deficit can be the consequence of low domestic saving or high domestic government borrowing. If domestic investment is very profitable then even high levels of domestic saving may still result in a savings shortfall, and the high returns may induce a structural capital inflow which will produce a sustainable current account deficit as a consequence. All these factors have influenced the increase in the US deficit in the past decade, and it is difficult to see how a correction to the deficit can occur without one of the domestic drivers changing in some way. Here we present a set of simulations using NiGEM to examine the impacts of alternative adjustment scenarios and their global implications. Before adding to the debate about the possible remedies, we will attempt to establish the sources of the current conjuncture, as the alternative adjustment paths for deficits and for the dollar depend on the sources of misalignment.

Manufacturers' and distributors' views on the effects of the Price Code towards the end of Stage 4 are summarised in this article. Since the onset of the recession, market conditions rather than price controls have determined price-levels. Market constraints have limited the use of profit safeguards and low profit relief as well. The Price Code, however, was widely blamed for contributing to lower profit-margins, particularly in its earlier stages; this was mainly because of the productivity-deduction, lack ofpricingflexibility, and delays in obtaining price increases. Less generally affected were investment, sales and marketing activities, and price-differentiation. Views on the changes to the Code required in a reviving economy are summarised.

Macroeconomic behaviour varies according to the character of the policy regime. There is therefore no truly ‘general’ theory which will apply at all times and in all places. Over the past hundred years, one model may be appropriate to the period of the gold standard, another to the interwar years, another to the so-called ‘Golden Age’ after the Second World War, and so on. Expectations, which depend on confidence in the regime, determine the stability of both prices and output. Institutions also adapt in ways that may support, or ultimately undermine, the foundations of the policy regime.