This note reviews recent Institute work on the factors that might affect the future evolution of consumption. Drawing on Barrell and Davis (2007), it discusses the evidence for the effects of housing wealth on consumption, and shows that there has been strong and well supported evidence for a link for some time. This evidence suggests that a fall in house prices will cause consumption growth to slow. The discussion also covers evidence from Barrell, Davis and Pomerantz (2006) on the effects of financial crises on consumption behaviour. They suggest that there are large and significant negative effects on consumption during banking crises that are over and above the effects on consumption of the crisis-induced changes in income and wealth. Much of this work is embedded in our structural model, NiGEM, and it is possible to estimate the effects of house price declines and financial crises on consumption and income using the model. The note also gives a set of ready reckoners for the impacts of house price declines on output and of a given associated fall in the level of housing wealth on the level of consumption.

Unemployment in the United Kingdom has now probably begun to rise. This note is based on an analysis of the figures during the last 10-15 years; its purpose is to show—mainly in chart form— some of the characteristics of unemployment in this country.

This paper reports estimates of the potential welfare effects of hypothetical increases in the petrol excise tax in New Zealand. Equivalent variations, for a range of household types and total expenditure levels, are obtained along with distributional measures. Household demand responses are modelled using the Linear Expenditure System, where parameters vary by total expenditure level and household type. The effects on inequality were found to be negligible, but the marginal excess burdens typically ranged between 35 and 55 cents per dollar of additional revenue.

This short essay begins by contrasting—in a rather broad brush manner—the two major types of explanation of the core of inflation in the United Kingdom. At one time these might have been labelled cost-push and demand-pull. It is now recognised, however, that the distinction cannot be made quite so sharply. It is perhaps better to speak of degrees of exogeneity of inflation—independence, that is, from other purely economic factors such as the pressure of demand and unemployment. The case of those who see important exogenous push elements in inflation may be labelled the eclectic—or, perhaps, the newspaper reader's—view. The other comprises the rather academic set of views associated with monetarist economists.

During the second half of the 1990s the UK economy enjoyed a sustained period of strong and stable growth. Since then the slowdown in the world economy that accompanied the collapse in equity markets has served until recently to moderate growth both domestically and abroad. But, in comparison to other major economies, the UK has so far emerged relatively unscathed. This could be the result of good fortune, well directed stabilisation policies or reformed institutions. Part at least of the relatively good growth performance displayed by the UK economy comes from stronger domestic demand. It is of course difficult to disentangle strong demand growth from the impacts on income of improved supply performance. We attempt to isolate those elements that are most clearly demand side stimulants.

The financial crisis that emerged during 2007 and overwhelmed the financial system in late 2008 also brought to the fore some of the obvious failings of the style of modelling that had been fashionable in central banks in the previous decade. The shift to Dynamic Stochastic General Equilibrium models (DSGE) of whatever sort left no real scope for money and financial markets to have an impact on the real economy. This was in part because equilibrium models based on theory are unlikely to be designed to cope with a period of disequilibrium, which is when the financial system becomes important in macroeconomics. DSGE models come in various guises, and it was common to operate with a three-equation model with demand, supply and the interest rate as the equations. It is hard to see how the financial sector could fit into this, or what use it would be even if it were included. Larger DSGE models that respect the national income identity are easier to augment with a financial sector; but even that developed by the US Federal Reserve (see Edge, Kiley and Laforte, 2010) tends to return to equilibrium rather more rapidly than seems reasonable.

The challenge for labour market policy in the new member states and other transition economies of Eastern Europe has been to redress the sharp drops in employment and rises in unemployment in a way that fosters the creation of productive jobs. This paper first documents the magnitude and productivity of job and worker reallocation. It then investigates the effects of privatisation, product and labour market liberalisation, and obstacles to growth in the new private sector on reallocation and its productivity in Hungary, Romania, Russia, and Ukraine. We find that market reform has resulted in a large increase in the pace of job reallocation, particularly that occurring between sectors and via firm turnover. Unlike under central planning, the job reallocation during the transition has contributed significantly to aggregate productivity growth. Privatisation has not only stimulated intrasectoral job reallocation, but the reallocation is more productive than that among remaining state firms. The estimated effect of privatisation on firm productivity is usually positive, but it varies considerably across countries. The productivity gains from privatisation have generally not come at the expense of workers, but are associated rather with increased wages and employment.

The government set up the Independent Commission on Banking (ICB) to consider structural and non-structural measures to promote stability and competition in the UK banking system. They have produced a comprehensive assessment covering some of the key issues facing the banking industry. The ICB's three core recommendations are: a ring-fence to separate retail and wholesale banking activities; banks are required to have more lossabsorbing capital; and greater competition in retail banking markets. In some respects, the recommendations are a step back towards an earlier time of compartmentalised banking. The litmus test is whether they deliver a similar period of financial stability and economic growth.

The National Institute recently published a study of comparative labour productivity in the non-service sectors of the British, American and German economies: agriculture, extractive industries, manufacturing, construction, public utilities and transport and communications. The present paper extends this work by measuring and analysing Anglo-American labour productivity differentials in the retail trades. Thus it marks our first step into the service sector proper, which accounts in the United Kingdom for one half of both GDP and employment, and in the United States for nearly three-fifths. The extent and significance of international productivity differences in services have been almost entirely neglected in the past, largely because the technical problems posed by productivity measurement in service sectors are even more complex than those encountered in industrial activities. One exception was a study of comparative productivity in distribution relating to the beginning of the 1950s, the methodology of which is similar to our own.

This article aims to assess the forecasts of the National Institute of Economic and Social Research with an emphasis upon their usefulness for arriving at policy recommendations. The forecasts that have been selected for consideration are those prepared in January or February over the period from 1959 to 1967. These are pre-budget forecasts, and are based on the assumption of no change in policy. They constitute a reasonably homogeneous group in that each forecast provides a prospective rate of change for GDP, in real terms, and its main constituents, from the final quarter of the previous year to the final quarter of the new year.

This paper argues that the Bank of England's independence in monetary policy has been compromised as a result of quantitative easing (QE) and makes practical suggestions for restoring it as far as possible, by transferring the gilts that the Bank has bought to the Debt Management Office of the Treasury and thereby shrinking the Bank's balance sheet. The paper discusses the problems that will arise when QE is unwound and suggests that they would be less intractable if the unwinding were managed by the Debt Management Office.

This article takes a short personal ‘helicopter ride’ over the main policy issues in the UK labour market, putting them into the context of the developments which have taken place in applied econometrics. We overview NIESR's role in the study of labour economics in postwar Britain and review some recent advances of importance in the current Institute research agenda.

Populism is a paradoxical phenomenon that resists easy categorisation because it both rejects and intensifies certain elements of technocracy. Populist politics is at once a backlash against liberal-technocratic ideology and policy and an attempted corrective of some of its worst excesses, such as increasing inequality or pressures on wages. Despite deep differences, both rest on a binary logic that conceals alternatives to the convergence around variants of techno-populism defended by either ‘corporate populists’ or ‘insurgent populists’. One alternative is a public policy programme focused on the building of an economic democracy with more democratic workplaces and a greater emphasis on the dignity of decent jobs, besides policies to reduce regional disparities and foster shared prosperity. But policies alone cannot fully address the deep-seated grievances fuelling the support for populists. Fundamental institutional reform is needed to devolve power and wealth to people and the places where they live and work.

Carbon taxes are likely to play a key role in meeting greenhouse gas emission targets that are consistent with the Paris Agreement. In this article, we assess the macroeconomic effects of a carbon tax on the global economy, paying particular attention to the terms-of-trade implications for importers and exporters of fossil fuels. We use a modified version of the National Institute’s Global Econometric Model, NiGEM. In the stylized scenarios, all countries and regions impose a permanent and uniform carbon tax immediately. Our simulations show that demand for fossil fuels falls substantially in response to the tax, global (pre-tax) prices of fossil fuels decline, and the tax can raise substantial revenue for the government. The overall impact on GDP growth and inflation in each country depends on the fossil fuel intensity of output, the net losses/gains in terms of trade and the macroeconomic policy reaction.

This paper reviews the market failures that may justify the need for liquidity regulation, assesses whether liquidity regulation is a necessary complement to Lender of Last Resort (LOLR) policies, capital regulation and prompt corrective action, surveys the available evidence on the net benefits of liquidity regulation, and concludes by outlining research directions useful to improve bank regulation design.

This article argues that it is a waste of time seeking to treat populists as examples of homo economicus when seeking to persuade them that the conspiracy theories to which they subscribe are big lies. But it does not follow that homo economicus is worthless in this context. He has a role in explaining the evolution of the social norms whose violation is the root cause of the rise of populist movements. Such an approach requires a willingness to entertain both proximate and ultimate explanations of human behaviour simultaneously.