In the context of economic management, with final targets for money GDP, wealth and the foreign exchange reserves, the exchange rate can be treated as an intermediate target. Monetary policy is used to keep the exchange rate close to its target and the target itself adjusts in response to information about the final targets. The target exchange rate can be used with main emphasis on either money GDP or on wealth. The latter is not possible if the wage—price loop is powerful. Two reruns of history are presented. The first uses the exchange rate mainly to look after money GDP with wages following their historical behaviour. The second uses fiscal policy to look after money GDP and the exchange rate to look after national wealth. It requires a reform of wage bargaining to be successful.

Radical changes have been implemented to pension schemes across the UK public sector from April 2015. This paper simulates how these changes will affect the lifetime pension and how the negotiated pension changes compare across six public sector schemes by level of education. Specifically, we simulate the occupation specific Defined Benefit (DB) pension wealth accumulated for a representative employee over the lifecycle by factoring in the recent changes to pension conditions. We find that less educated workers with low or moderate earnings in the NHS, Local Government and Civil Service schemes are the winners having secured an increase in the value of their pension of between 10–20 per cent. Graduate workers with faster wage growth in the Civil Service, Teachers and Local Government schemes lose between 3 per cent and 5 per cent. This is in sharp contrast with the Police and Fire services who have lost around 40 per cent irrespective of their education.

UK manufacturing productivity has for a long time lagged behind the US. Explanations put forward for the ‘productivity gap’ include disparities in capital stock levels, the quality of the labour force and different rates of technology adoption. The questions addressed in this paper are, ‘has slower UK up-take of information technology exacerbated the productivity gap? Can this account for the slowdown in the manufacturing sector in the mid-1990s, a period when the US experienced substantial growth?’ Using the growth accounting method and industry data for the period 1988-2000, the paper indicates considerable industry heterogeneity in both the UK and the US, which aggregate sectoral analysis is likely to obscure. The results suggest that whilst the UK continues to lag behind the US in terms of ICT capital shares, differences in rates of growth of ICT capital are minor. Labour quality indicators show positive ICT and non-ICT skilled labour growth and declines in lower skilled categories in both countries, with the UK leading the US in recent years. Thus UK manufacturing has invested significantly in new technology inputs. The paper also shows there are similarities in the cross industry patterns of productivity performance in the two countries but growth rates in the UK are significantly below those in the US across the board. The paper then considers alternative explanations for the slowdown in UK manufacturing productivity in the mid to late 1990s and suggests this may be due to macroeconomic factors peculiar to that period and lags in the adjustments of firms to a changed environment.

The financial crisis has led to a change in the mix of capital and labour employed in the UK and a sharp decline in total factor productivity. This has meant that labour productivity has not recovered to any great degree since the financial crisis. We explore the role of overall and sectoral productivity in explaining the fall in labour productivity, but also question the extent to which productivity in the service sector may be measured with error. We outline the links between a constrained financial sector and a fall in overall productivity – in which intangible capital seems to play an important role – and illustrate how a financial sector providing intermediate services may act to amplify the business cycle impetus from a total factor productivity shock within the context of a calibrated model.

Before 1914 long-term price stability was confidently expected in the UK. The typical yield then of 3 per cent per annum on long-term UK government bonds can be compared with the 4 per cent per annum on government index-linked bonds at end-1992. Inflation has made conventional long-term Government bonds riskier, and it is estimated that the real expected yield on these was about 5 per cent per annum at end-1992. Estimates are also provided for years in between, and for expected real returns on equities, and for the US, and these may surprise some. As estimated, expected real long-term UK government conventional bond yields were mostly at or above 4 per cent per annum. As bonds became relatively more risky, the risk premium on equities came down and is currently quite small, so that the cost of equity capital has not risen as has the cost of government conventional bond borrowing. In the absence o f a prolonged world depression, it seems likely that current expected real long-term interest rates will not fall, and could go higher.

Since unemployment began to rise again last year, the need for a response from government is once again being discussed. As the unemployment total rises toward 2 1/2 million and threatens to continue to rise next year, it will be repeatedly in the headlines for some time to come. One policy response to persistently high unemployment in the UK, and by governments around the world, has been the use of Special Employment Measures. It is therefore surprising that direct special measures in Britain are now at a seven year low and are facing further funding cuts of around 18 per cent in real terms during the next financial year. Here we take a look at recent developments in Special Measures in the UK, and assess the adequacy of current programmes to meet the needs of the 1990s.

This article looks at the likely future trends in home demand for four major electrical appliances—television sets, refrigerators, washing-machines and vacuum cleaners. The sales of all four have risen fast in the last decade (table 1, chart 1)—by an average of 16.5 per cent a year, taking all four together, compared with 2.2 per cent for total consumer demand.

The Reddaway Report on the distributive trades argued that the imposition of SET had favourable effects upon productivity in retailing. On the face of it the reduction and ultimate abolition of the tax could be expected to be followed by correspondingly large adverse productivity effects. For a number of reasons, however, we doubt whether such an inference is justified.

The rest of this article is organised under the following six headings:

1. (1) the broadly macroeconomic developments of the Russian economy;

2. (2) its international experience relating to trade both with the nearer (that is, former Soviet Union (FSU)) and further abroad and capital movements both legal and illegal on market and concessionary terms.

3. (3) The microeconomic or institutional reform section ranges widely among many aspects of market liberalisation and enterprise reform including specific sectors, finance, taxation, non-compliance and other criminal activity; this leads on to

4. (4) developments in the labour market, the social sector and the distribution of income and wealth,

5. (5) followed by political considerations and

6. (6) a final conclusion relating as much to western policies as that of Russia itself.

Through its quantitative easing programme the Bank of England has looked to manage the supply of nominal UK government securities in order to lower interest rates. In doing so it has removed more than 25 per cent of the overall supply of those securities from the publicly accessible market. The benchmark New Keynesian model suggests this should only have an impact on interest rates insofar as it affects expectations of future policy rates, whilst alternative theoretical frameworks imply a direct effect of changes in supply onto yields. Our aim is to test for the existence of these potential transmission mechanisms. We find empirical evidence to support the existence of both channels. Our analysis suggests the Bank's quantitative easing programme reduced yields by around 25 basis points through the supply channel alone. Importantly, we find that such supply effects have remained significant in recent years, suggesting that as quantitative easing is unwound the increase in publicly available supply will put upward pressure on interest rates. Lastly we highlight the monetary-fiscal interaction inherent in our result and discuss some of the issues it raises for policymakers.

Since May 1997, when the Bank of England was given operational independence to set monetary policy, the Monetary Policy Committee (MPC) has been responsible for setting short-term interest rates to ensure that the Government's inflation target is met. The target is currently 2.5 per cent and the target measure is the Retail Price Index excluding mortgage interest payments (RPIX). If RPIX inflation deviates more than 1 per cent from the central target, the Governor of the Bank of England is expected to provide a written explanation to the Chancellor of the Exchequer as to why the inflation target has been missed.

This note discusses methods of forecasting investment in housing in Britain for twelve to eighteen months ahead. The first section discusses the figures for housing investment, and the way in which they are compiled. The second section sets out what is at present done at the Institute in the preparation of quarterly forecasts. The third section describes a preliminary exploration of more satisfactory ways of forecasting private housing demand.

The National Institute was founded in 1938, after a first initiative by Sir Josiah Stamp in the early 1930s. Stamp, who was the President of the London Midland and Scottish railway, had been connected with a Rockefeller Foundation scheme to provide fellowships in the social sciences; he became convinced that a wider attack was needed on the problem of financing the social sciences in Britain and his objective became the development of a central unit, of British origin, with funds under its own control. This would supplement and replace the help given by the Rockefeller Foundation (then the main source of research funds in the British social sciences) and develop an increasingly large research effort in economics and related subjects. Stamp made known his views and with the support of a number of prominent academics, in particular William Beveridge, Director of the London School of Economics; Henry Clay, Economic Adviser to the Bank of England; and Hubert Henderson, Secretary of the Economic Advisory Panel, began to search for British financial support.

The global recession has driven a surge in the number of unemployed people across the world. The ILO estimates that global unemployment in 2009 will be some 29–59 million higher in 2009 than it was in 2007, a rise of 16–33 per cent. After taking into account global population projections, this points to a rise in the global unemployment rate of 0.8–1.7 percentage points. A rule of thumb that is often used to relate unemployment to output suggests that a decline in GDP of 2–3 per cent is associated with a 1 percentage point increase in the unemployment rate (see for example Knotek, 2007). Known as Okun's rule of thumb, these estimates are based on a simple regression of the percentage change in output against the percentage point shift in the unemployment rate. These estimates vary across time and across countries, and obviously omit important factors that determine potential output. Nonetheless, the framework provides a convenient way of comparing current labour market developments with behaviour in the recent past. In figure 1 we illustrate the relationship between GDP growth and the change in the unemployment rate in the OECD as a whole, using quarterly data from 1988Q2 to 2008Q3.

Leading indicators are produced by both the OECD and the UK Office of National Statistics as tools for predicting turning points of the business cycle. An assessment on the basis of performance at turning points is frustrated by their scarcity. It is found that the indicators generally have significant (but not good) ability to predict changes in the direction of the variable they are intended to lead. When they are included in VAR models the standard error of quarter on quarter changes is generally lower than when pure autoregressions are used. However, the forecasting power of such equations is poor, and the general conclusion is that such indicators are not good forecasting tools.

‘Fine-tuning’ can be defined as frequent discretionary adjustments to policy instruments. This article attempts to isolate this issue from a multiplicity of criticisms directed at UK economic policy-making. The attack on fine-tuning itself by the New Cambridge and the Manchester monetarist schools is shown to be connected essentially with the view that the economy is stable (i.e. returns to equilibrium in the absence of discretionary intervention). Nevertheless, even if the economy is stable, optimal control theory suggests that policy adjustments could be desirable, essentially because they could, at least in principle, speed the return to equilibrium. A more fundamental question concerns the way in which the private sector form their expectations; if they are ‘rational’, that is based on information at least as good as the authorities', then the grounds for discretionary intervention by the authorities are greatly diminished. These issues all require further empirical investigation.