This paper gives an account of a method of forecasting the Ministry of Labour's retail prices index, and of deriving from it a forecast of the consumer price index. (This is the index used in the National Income statistics to deflate the value of consumers' expenditure to volume terms.) Good forecasting obviously has to be based on a correct analysis of the factors which determine price changes; the article throws light on the way in which cost changes are taken into account when prices are changed. It seems that retail prices (apart from seasonal food prices) do not respond directly to short-term fluctuations in demand and output. Businessmen do not raise prices because demand suddenly rises; nor on the other hand do they lower them when output moves up sharply and unit costs fall. The analysis, therefore, provides further support for the ‘normal cost’ theory of pricing—that businessmen set prices by calculating their costs when working at some normal capacity, and add a conventional margin.

Lou, Abrami, Spence, Poulsen, Chambers, and d'Apollonia (1996) reported the findings from a quantitative review showing generally positive but variable effects of within-class grouping on pupil achievement and other outcomes. Replying in the National Institute Economic Review (July 1998), Prais argued for whole-class teaching claiming that we mis-summarised our findings. In this abbreviated rejoinder, we argue that our findings are: useful; not so variable as to be meaningless; provide evidence of beneficial effects for pupils of all relative abilities; are thorough and detailed; and provide a rather complete picture of the available evidence. In contrast, we believe that Prais (1998) has relied too heavily on conjecture and selective citation to offer a view of within-class grouping which is a serious mis-summarisation of the findings.

The demand for and supply of paper and board were studied in an article published in 1965 in the Review which surveyed past trends and contained forecasts for 1970 and also for 1975. The present article carries forward the analysis of trends, compares the previous forecast with the actual outcome for 1970, reassesses the prospects for 1975, and extends the forecast period to 1980.

The rapid advance and diffusion of new information technologies left pronounced imprints on the formation of human capital. Firstly, it favoured the growth of specific computer related occupations, secondly it raises the demand for higher levels of workforce education. Although IT equipment is the showcase of a general purpose technology, pervading the production process in any kind of economic activity, there is substantial heterogeneity among industries in terms of IT-labour intensity. The article demonstrates that these differences are sufficiently systematic to establish a new sectoral classification, which captures substantial portions of the total variation in the above dimensions. More specifically, the results contrast popular beliefs about a uniform dissemination of new information technologies in all sectors.

This article contains a number of comments on the one which appeared under the same title in the May 1971 issue of the National Institute Economic Review, which was prepared by J. D. Whitley and G. D. N. Worswick. It will be obvious to readers that some of the comments made in that article and in this reply are of the detailed kind which might with advantage have been cleared up by correspondence before publication. In fact, such an exchange of papers between the National Institute and the Department of Applied Economics was begun last year. However, the halving of SET announced in the budget obliged the National Institute to take a view on its probable effect, and they felt that this entailed explaining to their readers why they had not been wholly convinced by the analysis of the Reddaway Report. This left no time for any further attempts to reconcile, where possible, the differentpoints of view.

In the past decade early years education has expanded throughout England with progressive extensions in entitlement to some hours of free provision. Furthermore, there is consistent evidence that shows that early years education leads to improvement in cognitive and social development for children. This paper uses the latest data from the Millennium Cohort Study to consider whether, in an era of near universal provision, receipt of early years education still leads to better outcomes for children than for those who did not receive early years education and whether different characteristics of provision produce better outcomes. The outcome measures we consider are the Foundation Stage Profile Assessments that apply to all children in England.

Table 1 shows a set of cost and price indices, indicating their percentage rate of change in the four most recent years and their trend rate of increase in the preceding seven.

The formidable problems of estimating stable econometric relationships explaining capital expenditure which are usable for forecasting purposes are well known. These are attested by the fact that despite the very large number of regression studies in the field no clear consensus has yet emerged among economists as to the determinants of investment behaviour. Given the difficulties of econometric model-building it is hardly surprising that in practice considerable reliance should be placed on the concrete evidence about future investment plans afforded by business surveys when making short-term forecasts of investment.

Figures published recently in Sweden illustrate the implications of Britain's failure to improve productivity in the 1960s as quickly as continental Western Europe. Though wage costs per unit of output in manufacturing industry have risen faster in Britain than in other major industrial countries, the statistics show that employers' total payments per hour of work are now lower here than in almost any industrial country except Japan.

In March this year, after a year in which policy appeared to be aimed at achieving stability against EMS currencies, the pound was allowed to rise sharply in response to large capital inflows. As with many fluctuations in exchange rates, this development was puzzling in that the prospects for the balance of payments suggested that the rise in sterling would not prove sustainable. On the other hand, high UK interest rates, particularly in relation to those available in EMS countries, provided some rationale for a temporary rise. This note uses a simple forward-looking equation for the exchange rate to illustrate the implications of alternative paths for interest rates and the balance of payments. A number of simulations are presented to illustrate the key elements of this approach.

Membership in the monetary union imposes higher demands on factor market flexibility, since neither the exchange rate nor monetary policies can be used to deal with country-specific shocks. In this paper we assess the ability of the twelve new EU member states (NMS-12) to dampen the impact of shocks by means of macroeconomic wage flexibility. Following the structural VAR approach elaborated in Moore and Pentecost (2006), real wage flexibility is measured by the responsiveness of real wages to real (permanent) and nominal (temporary) shocks. The analysis of Moore and Pentecost (2006) is extended in three ways: by employing a new Eurostat labour cost data set covering 1996Q1 to 2007Q3, by using a large sample of 24 EU member countries, and by assessing the sensitivity of the results to the sample length. We find evidence of heterogeneous real wage adjustment across the new as well as the mature EU economies. Overall, the degree of real wage flexibility in the NMS-12 lies within the bounds of the corresponding values for the Euro Area ‘core’ and ‘peripheral’ member countries.

Dynamic optimisation problems involving rational expectations require a transversality condition to produce a unique solution (see Hall, Henry and Wren-Lews, 1986, for an example). These transversality conditions generally amount to a statement about the nature of the endogenous variable in the infinite Song run; for example, that the long run involves a stable equilibrium. An analagous problem arises in econometric macro models, where a unique solution requires a ‘terminal condition’ for any forward-looking variables beyond the solution period of the model. Transversality and terminal conditions are not equivalent, however, because we cannot solve macro models into the infinite future (see Hall and Henry, 1988, pages 192-198).

In the Review of February 1981 the NIESR Model (hereafter NM) errors for 1972-80 for GDP and inflation were juxtaposed with the Liverpool Model (hereafter LM) errors reported in Minford (1980a) and other references. It was stated that this was a ‘direct comparison’. It was also stated that my comparison of the LM errors with the actual forecast errors made by NIESR ‘was not a proper one’. The object of this note is (a) to deny the first statement and (b) with respect to the second, clarify the sense in which my comparison (Minford 1980a) was indeed proper.

The changes in the exchange rates of the major exporters of manufactures between 1967 and 1971 were followed by substantial changes in their export performance measured against trends before the realignment, indicating that the devaluations and revaluations were effective, contrary to some preliminary assessments. Changes in relative prices are a good explanation of the previous trends, as well as the basic reason for expecting effects from exchange rate changes. The results under fixed rates cannot therefore be applied under floating rates as these reduce, if they do not eliminate, relative price changes converted to a common currency.

This paper uses economic history to probe the relationship between state capacity and economic growth during the Great and Little Divergences (c.1500–c.1850). It identifies flaws in the dominant measure of state capacity, fiscal capacity, and advocates instead analysing state expenditures. It investigates five key activities on which states historically spent resources: waging war; providing law and administration; building infrastructure; pursuing industrial policy; and fostering a national culture. The lesson of history, it concludes, is not to build a capacious state. Rather, we need a state that uses its capacity to help (or at least not hinder) market activity.