The preliminary figures for GDP in the first quarter of the year show a small increase. If oil and gas production are excluded the rise was about 1/2 per cent, following four quarters in which there was virtually no change at all. This confirms other indications of an incipient recovery, such as the rise in production and retail sales, increases in the volume of both exports and imports, more activity in the housing market and a surprising fall in unemployment. Surveys of business confidence also show a marked improvement. An upturn in economic activity would be a natural consequence of the fall in the exchange rate when sterling left the ERM and of the subsequent expansionary policy measures—as we have been predicting since last September.

Teaching practical subjects (e.g. woodwork, technical drawing, domestic science) in secondary schools can provide a valuable foundation and introduction to subsequent vocational training and qualification. This article compares the way such subjects are taught in secondary schools in Britain with three Continental countries—Germany, Switzerland and the Netherlands. The emphasis on high quality of finish in the making of small articles to a given design, which is the normal approach in these Continental countries, is contrasted with the British emphasis on pupils' developing their own designs to solve larger problems—an approach which leaves less time for making the final article and achieving a high standard of finish. The implications for the current revision of the National Curriculum in Technology are considered.

The debt-deflation theory of Irving Fisher has received renewed attention recently as analysts have attempted to provide an explanation for the behaviour of the UK economy over the current business cycle.

Fisher (1933) asserted as part of his ‘creed’ on business cycle theory that ‘in the great booms and depressions, each of [a set of other factors] has played a subordinate rôle as compared with two dominant factors, namely over-indebtedness to start with and deflation following soon after … In short, the two big bad actors are debt disturbances and price level disturbances.’ (Italics in original.)

The late-1950s and 1960s were, by recent standards, a period of low and stable inflation. Since then, however, inflation has been both higher and more volatile peaking above 24 per cent in 1975 in the wake of the quadrupling in the world price of oil. As a consequence, the control of price inflation has become a central concern of macroeconomic policymakers. In the 1970s, the policy response was often to rely on sonic form of direct control of prices and earnings through incomes policies. By contrast, the Conservative administration from 1979 onwards eschewed all forms of market interference instead relying on the more explicitly macroeconomic policies of monetary control. At first, these took the form of announced targets for the broad monetary aggregates (initially £M3), but through the 1980s the specification of the Medium Term Financial Strategy (MTFS) evolved to allow a more flexible assessment of monetary conditions' which allowed a wider range of indicators to be monitored. Nevertheless, the primary aim of policy remained the control of inflation. The commitment of sterling to the exchange rate mechanism in February 1990 was a logical extension to this approach. The failure to maintain this policy is, by now, well known and the subsequent relaxation of policy in the wake of ERM departure has clearly represented a shift in emphasis away from pure inflation targeting towards a more active concern for the maintenance of output. Nevertheless, recent policy statements, in particular with the announcement of an inflation target of 1–4 per cent for the forthcoming year, have been at pains to preserve the role of the inflation objective in the overall policy framework.

Much of the debate on the desirability of a monetary union in Europe has focused on the question of whether Europe can be described as an optimum currency area (OCA). The European Commission in its report ‘One money, one market’ takes the view that this theoretical framework gives useful insights for the analysis of the economics of EMU and its potential costs and benefits, even though it is not decisive, but it has to be complemented by other approaches. Many studies have tried to provide an answer to the topical question of the optimality of introducing a single currency, adopting different research strategies. This note explains why a knowledge of the nature of the shocks is crucial to evaluating the potential costs of creating a monetary union, and applies a statistical technique known as principal components analysis to distinguish between common and country-specific shocks. After surveying the existing literature on OCAs, we present some new empirical results which confirm the relative importance of asymmetric shocks in the Community. A well-functioning monetary union could require some instruments for adjusting to shocks of this kind, for example fiscal transfers across the member countries.

The National Institute now has a series of Discussion Papers in A5 format. Discussion Papers continue to range over the whole field of macro and micro economics including studies in the fields of European integration, productivity and industrial policy and macroeconomic simulations.

National Institute Discussion Papers are now offered at a special subscription rate of £20.00 (including p+p) for the first ten papers published in the new series, nos.11–20, 21–30 or 31–40 at a price of £22.00 (£30.00 overseas), or at £3.00 (£4.00 overseas) per single copy. These are now available by contacting Gill Clisham at the National Institute who will then invoice you as appropriate.