National Institute Economic Review recent issues

AT A GLANCE . . . The world economy

Wed, 21 Oct 2009 01:04:53 PDT

AT A GLANCE . . . The UK economy

Wed, 21 Oct 2009 01:04:54 PDT

COMMENTARY: THE BURDEN OF THE NATIONAL DEBT

Weale, M. — Wed, 21 Oct 2009 01:04:55 PDT

THE WORLD ECONOMY: Consumer spending and the financial crisis

Wed, 21 Oct 2009 01:04:58 PDT

THE WORLD ECONOMY: Effects of risk premia falling below sustainable levels in the US

Wed, 21 Oct 2009 01:04:53 PDT

THE WORLD ECONOMY: Asian fiscal stimulus supporting the global recovery

Wed, 21 Oct 2009 01:04:54 PDT

THE WORLD ECONOMY: Prospects for fiscal consolidation in Europe

Wed, 21 Oct 2009 01:04:54 PDT

LONG-TERM SCARRING FROM THE FINANCIAL CRISIS

Barrell, R. — Wed, 21 Oct 2009 01:04:55 PDT

PROSPECTS FOR THE UK ECONOMY

Kirby, S., Barrell, R., Foley-Fisher, N. — Wed, 21 Oct 2009 01:04:55 PDT

BUDGET CONSOLIDATION OPTIONS FOR THE UK

Barrell, R. — Wed, 21 Oct 2009 01:04:55 PDT

CONFIDENCE AND LEADING INDICATORS: INTRODUCTION

Mitchell, J. — Mon, 19 Oct 2009 19:05:59 PDT

Erratum

Wed, 21 Oct 2009 01:04:58 PDT

A SYSTEM OF RAPID ESTIMATES TO IMPROVE REAL-TIME MONITORING OF THE ECONOMIC SITUATION: THE CASE OF THE EURO AREA

Mazzi, G. L., Montana, G. — Mon, 19 Oct 2009 19:05:59 PDT

Timely availability of relevant economic information is from the users' point of view a crucial pre-requirement for effective economic and monetary policy and for accurate analysis and reliable forecasting. Unfortunately, official statistics are not always able to meet such needs. For this reason, particularly over the recent past, advanced statistical and econometric techniques have been used to complement the classical production process in order to increase the timeliness of the relevant economic information. Furthermore, official statistics do not necessarily show explicitly relevant phenomena such as the cyclical situation and the location of turning points. In order to fill this gap, indicators have to be built up to extract such relevant signals and to make them available in an easily readable and comprehensible way to all users. This paper gives a general overview of ongoing Eurostat projects, aiming to supply timely information to all users based on transparent and statistically sound methodologies. In particular this paper presents results related to the construction of flash estimates in order to increase the timeliness of official statistics as well as the construction of a timely statistical system for business cycle analysis based on a set of turning points indicators and cyclical estimates. The results obtained so far are very encouraging, especially in terms of the overall quality of the estimates and the statistical robustness of the proposed methods. Nevertheless, some improvements, particularly related to the precision of flash estimates, are needed, especially under an uncertain economic situation and regime changes.

NOWCASTING IS NOT JUST CONTEMPORANEOUS FORECASTING

Castle, J. L., Fawcett, N. W.P., Hendry, D. F. — Mon, 19 Oct 2009 19:05:59 PDT

We consider the reasons for nowcasting, the timing of information and sources thereof, especially contemporaneous data, which introduce different aspects compared to forecasting. We allow for the impact of location shifts inducing nowcast failure and nowcasting during breaks, probably with measurement errors. We also apply a variant of the nowcasting strategy proposed in Castle and Hendry (2009) to nowcast Euro Area GDP growth. Models of disaggregate monthly indicators are built by automatic methods, forecasting all variables that are released with a publication lag each period, then testing for shifts in available measures including survey data, switching to robust forecasts of missing series when breaks are detected.

NOWCASTING EURO AREA ECONOMIC ACTIVITY IN REAL TIME: THE ROLE OF CONFIDENCE INDICATORS

Giannone, D., Reichlin, L., Simonelli, S. — Mon, 19 Oct 2009 19:05:59 PDT

This paper assesses the role of qualitative surveys for the early estimation of GDP in the Euro Area in a model-based automated procedure which exploits the timeliness of their release. The analysis is conducted using both an historical evaluation and a real-time case study on the current conjuncture.

USING REAL-TIME OUTPUT GAPS TO EXAMINE PAST AND FUTURE POLICY CHOICES

Adam, C., Cobham, D. — Mon, 19 Oct 2009 19:05:59 PDT

Alternative measures of the UK output gap are considered for 1984-2007. The real-time series is strongly affected by the rolling-time estimation of the trend, and produces a picture of the business cycle which is not consistent with contemporary perceptions of the large fluctuations of the late 1980s and early 1990s. A new, 'nearly-real', measure developed here may be better for estimating historical reaction functions. In the context of the current recession, none of these mechanically derived measures of the output gap are useful. Policymakers should make careful estimates of the likely fall in potential output on the basis of other information.

ARCHITECTS AS NOWCASTERS OF HOUSING CONSTRUCTION

Holmes, M. J., Mitchell, J., Silverstone, B. — Mon, 19 Oct 2009 19:05:59 PDT

For more than four decades, the New Zealand Institute of Economic Research (NZIER) has conducted a two-question, quarterly survey of architect forecasts of public and private sector construction expenditure. This qualitative survey is published one week after the end of each quarter and nine weeks ahead of the official quantitative data thereby giving architect opinion nowcasting status. This paper covers selected aspects of this unexplored series with particular reference to residential housing construction and the value-added information from architects as nowcasters. Specifically, we consider several qualitative-to-quantitative conversion methods, in-sample and out-of-sample performance, cyclical features and respondent dynamics. Although our work relates to architects - a sub-sector of the service industry - our results have a wider application to business survey questions using ordered qualitative responses.

Economic Overview: AT A GLANCE . . . The world economy

Wed, 22 Jul 2009 02:04:32 PDT

AT A GLANCE . . . The UK economy

Wed, 22 Jul 2009 02:04:32 PDT

COMMENTARY: INTERNATIONAL RECESSION AND RECOVERY

Weale, M. — Wed, 22 Jul 2009 02:04:32 PDT

THE WORLD ECONOMY: The recent decline in global risk premia

Wed, 22 Jul 2009 02:04:33 PDT

THE WORLD ECONOMY: Financing conditions ease in North America

Wed, 22 Jul 2009 02:04:31 PDT

THE WORLD ECONOMY: Policy easing in East Asia has been effective

Wed, 22 Jul 2009 02:04:32 PDT

THE WORLD ECONOMY: Recession in the Euro Area

Wed, 22 Jul 2009 02:04:32 PDT

LABOUR MARKETS IN RECESSION: AN INTERNATIONAL COMPARISON

Holland, D., Kirby, S., Whitworth, R. — Wed, 22 Jul 2009 02:04:32 PDT

PROSPECTS FOR THE UK ECONOMY

Kirby, S., Barrell, R. — Wed, 22 Jul 2009 02:04:33 PDT

WHERE ARE WE NOW? THE UK RECESSION AND NOWCASTING GDP GROWTH USING STATISTICAL MODELS

Mitchell, J. — Wed, 22 Jul 2009 02:04:33 PDT

WORK AND WELL-BEING: INTRODUCTION

Bryson, A., Freeman, R. B. — Mon, 20 Jul 2009 16:06:03 PDT

THE EFFECT OF WORK STATUS AND WORKING CONDITIONS ON MENTAL HEALTH IN FOUR OECD COUNTRIES

Llena-Nozal, A. — Mon, 20 Jul 2009 16:06:03 PDT

This study aims to assess empirically whether being employed or returning to work is beneficial for all in terms of mental health, especially for those who already suffer from a longstanding illness or disability. We use longitudinal surveys from Australia, Canada, Switzerland and the UK to estimate panel data models that link decisions regarding labour market choices to health developments. To allow for state dependence of mental health, a dynamic panel model is used. The longitudinal analysis shows that non-employment generally is worse for mental health than working. The mental-health payoff to employment varies depending on the type of employment contract and working conditions. In particular, the mental health benefits for inactive individuals who obtain a non-standard job appear to be smaller than for those moving into standard employment arrangements, even after controlling for pre-existing mental health problems.

VALUING JOBS VIA RETIREMENT: EUROPEAN EVIDENCE

Clark, A. E., Fawaz, Y. — Mon, 20 Jul 2009 16:06:03 PDT

While much has been made of the value of employment relative to unemployment, much less is known about the value of work relative to retirement. Here we use two European panel datasets to show first that psychological well-being (measured on the EURO-D and GHQ scales) barely changes on average when individuals retire. However, there is a great deal of heterogeneity in the size of this change between job type and between individuals. Some gain on leaving work, while others experience substantial falls in well-being on retiring, suggesting that they may have preferred to carry on working. We suggest that the results of these analyses can help to inform policy aiming to encourage labour supply by older workers.

IS LEISURE CONTAGIOUS? THE RELATIONSHIP BETWEEN SICKNESS ABSENCE AND SPOUSAL RETIREMENT

Hesselius, P. — Mon, 20 Jul 2009 16:06:03 PDT

This paper studies the relationship between sickness absence and spousal retirement. Swedish panel data have been used to estimate the effects of both old-age retirement and disability retirement on average sickness absence during 1996 to 2001 for men and women. Spousal old-age retirement significantly increases female average long-term sickness absence by approximately one week per year, while spousal disability retirement yields a significant increase in average sickness absence for men by approximately one week and for women by approximately two weeks per year.

A TALE OF TWO CONTINENTS: INSURING WORKERS AGAINST LOSS OF INCOME DUE TO SICKNESS IN NORTH AMERICA AND EUROPE

Treble, J. — Mon, 20 Jul 2009 16:06:03 PDT

Sick pay has been debated recently in several economies, including the US, Germany and Sweden. There is, however, little academic discussion of the nature of sick pay, or of how it should be structured. This paper clears the ground for such a discussion in two ways; it identifies a conceptual difference between the North American model, rooted in job protection, and the European model, which is predominantly a form of social insurance. Secondly, it argues that experience-rated sick pay provided by employers avoids the classical problems of insurance markets. US-style paid sick leave is an example of such a scheme.

STATISTICAL APPENDIX

Wed, 22 Jul 2009 02:04:31 PDT

AT A GLANCE...The world economy

Tue, 05 May 2009 16:06:03 PDT

AT A GLANCE...The UK economy

Tue, 05 May 2009 16:06:03 PDT

COMMENTARY: FISCAL POLICY AND THE FISCAL POSITION

Weale, M. — Tue, 05 May 2009 16:06:03 PDT

THE WORLD ECONOMY: The global financial crisis and collapse in world trade

Tue, 05 May 2009 16:06:03 PDT

THE WORLD ECONOMY: Recession in North America

Tue, 05 May 2009 16:06:03 PDT

THE WORLD ECONOMY: Asian economies are highly sensitive to the collapse of world trade

Tue, 05 May 2009 16:06:03 PDT

THE WORLD ECONOMY: Destocking in the Euro Area

Tue, 05 May 2009 16:06:03 PDT

DEBTS, DEFICITS AND BORROWING COSTS

Barrell, R., Holland, D. — Tue, 05 May 2009 16:06:03 PDT

PROSPECTS FOR THE UK ECONOMY

Kirby, S., Barrell, R., Pillonca, V. — Tue, 05 May 2009 16:06:03 PDT

FISCAL SUSTAINABILITY

Barrell, R., Kirby, S. — Tue, 05 May 2009 16:06:03 PDT

TEN YEARS OF ECONOMIC AND MONETARY UNION: INTRODUCTION

Barrell, R. — Tue, 05 May 2009 16:06:03 PDT

THE EURO: PAST SUCCESSES AND NEW CHALLENGES

Buti, M., van den Noord, P. — Tue, 05 May 2009 16:06:03 PDT

The successes of the first decade of European Economic and Monetary Union are impressive, but it is fair to stress these were achieved in a relatively benign economic environment characterised by steady global growth, supportive financial conditions and fiscal windfalls associated with booms in asset markets. Although all this has come to an abrupt end with the financial crisis, there is a silver lining of fiscal stimulus being more effective in EMU than without the single currency, with offsetting exchange rate responses absent, trade multipliers stronger and the fiscal framework credible. But the financial crisis also clearly demonstrated the need for stronger coordination of national policy actions to internalise crossborder spillovers. Meanwhile, the European Commission has a major role to play in striking the right balance between short-term emergency measures and longer-term priorities. Against this backdrop, this article sheds light on the longerrun challenges and the policy agenda for meeting them.

TEN YEARS OF EMU: CONVERGENCE, DIVERGENCE AND NEW POLICY PRIORITIES

Christodoulakis, N. — Tue, 05 May 2009 16:06:03 PDT

As the tenth anniversary of EMU is approaching, a debate is underway as to whether the single currency has promoted or hindered convergence among the countries of the Euro Area. On the one hand, there is wide agreement that asymmetric shocks have subsided after the creation of the single currency, but if one moves to examine the catching-up process between the more and less affluent countries of the Euro Area, the evidence is waning. Another worrying development in the Euro Area is the emergence of unprecedented current account deficits in the southern Euro Area countries, while the northern ones enjoy substantial surpluses. To counter these new imbalances, new well-framed policy priorities are required in the Euro Area that put more emphasis on convergence and competitiveness than before.

THE IMPACT OF EMU ON REAL EXCHANGE RATE VOLATILITY OF EU COUNTRIES

Davis, E. P., Pomerantz, O. — Tue, 05 May 2009 16:06:03 PDT

There is only a sparse literature on the determination of real exchange rate volatility, and little attention has been given to the possible impact of EMU on volatility of real exchange rates of EU countries. A number of papers suggest a negative impact of exchange rate volatility on investment or growth, for advanced as well as developing countries, although we note that price and wage adjustment that might link to real exchange rate volatility is also part of the adjustment mechanism to macroeconomic shocks in EMU. We assess whether an effect of EMU on conditional volatility of real effective exchange rates can be detected, both for EMU and non EMU members. We find that the advent of EMU was accompanied by a reduction in conditional real exchange rate volatility for most EMU countries, as well as Sweden and Denmark that did not join EMU, but did not lead to a reduction in real rate volatility for Germany, Belgium, the Netherlands, nor, outside EMU, for the UK.

HOW MUCH IS THE EURO AREA COMMON CYCLE AFFECTED BY THE UK?

Garnier, J. — Tue, 05 May 2009 16:06:03 PDT

To what extent is the Euro Area common business cycle affected by the inclusion of the UK into this group? To answer this question, a semi-structural model estimated by the Kalman filter, which is robust to outliers and structural breaks, is used. We look at the correlations between business cycles taking potential phase shifts into account. On the one hand, a finding – coherent with existing literature – is that adding the UK to the euro group lowers correlations within the group. On the other hand, the UK cycle is increasingly linked to the Euro Area business cycle and has statistical properties that do not differ substantially from the Euro Area cycles.

THE IMPACT OF EUROPEAN AND GLOBAL INTEGRATION ON THE MARK-UP OF PRICES OVER COSTS

Holland, D. — Tue, 05 May 2009 16:06:03 PDT

This paper develops a new approach for investigating the determinant of the mark-up of prices over costs. We estimate basic price equations around an expression for marginal cost that is derived from a cost minimisation problem, using a vector error correction approach to avoid endogeneity bias. Observed basic prices include the mark-up over marginal costs, and this mark-up is of interest to policymakers as an indicator of competition and ultimately as a determinant of the level of equilibrium employment. We look at the factors driving this mark-up, and in particular look at the role of EMU, as well as globalisation, the European Single Market and openness to trade and the introduction of the euro. We use a panel data set that includes both EMU and non-EMU members. The results indicate an important role for trade liberalisation in determining the mark-up, but openness itself and the introduction of the euro do not appear to have a significant role.

STATISTICAL APPENDIX

Tue, 05 May 2009 16:06:03 PDT

AT A GLANCE...The world economy

Thu, 05 Feb 2009 01:04:23 PST

AT A GLANCE...The UK economy

Thu, 05 Feb 2009 01:04:23 PST

Commentary: Growth Prospects and Financial Services

Weale, M. — Thu, 05 Feb 2009 01:04:23 PST

THE WORLD ECONOMY: The global cost of delaying bank stability

Thu, 05 Feb 2009 01:04:22 PST

THE WORLD ECONOMY: Fiscal expansions in North America

Thu, 05 Feb 2009 01:04:22 PST

THE WORLD ECONOMY: Economic downturn in Asia

Thu, 05 Feb 2009 01:04:23 PST

Coordinated fiscal stimulus in the Euro Area

Thu, 05 Feb 2009 01:04:23 PST

Evaluating Policy Reactions to the Financial Crisis

Barrell, R., Fic, T., Holland, D. — Thu, 05 Feb 2009 01:04:23 PST

Fiscal Policy Effectiveness in the Banking Crisis

Barrell, R., Fic, T., Liadze, I. — Thu, 05 Feb 2009 01:04:24 PST

We investigate the effects of changes in taxes using the National Institute international macro model, NiGEM. A comparison on fiscal impulses worth 1 per cent of GDP for one year is made, with a comparison of a direct tax change, indirect tax change, and a lump sum payment. Multipliers are assessed one country at a time and when policy is coordinated to increase its impacts. We look at the importance of releasing borrowing constraints in a banking crisis. The analysis assumes financial and foreign exchange markets are forward looking.

Prospects for the Uk Economy

Kirby, S., Barrell, R., Pillonca, V. — Thu, 05 Feb 2009 01:04:24 PST

The production of this forecast is supported by the Institute's Corporate Members: Abbey plc, Bank of England, Barclays Bank plc, HM Treasury, Nomura Research Institute Europe Ltd, and the Office for National Statistics.

DATA ON THE CREDIT CRUNCH

Weale, M. — Thu, 05 Feb 2009 01:04:24 PST

Quality Assessment of Early Years Education: Introduction

Wilkinson, D. — Tue, 03 Feb 2009 18:00:54 PST

Good Quality Childcare for All? Progress Towards Universal Provision

La Valle, I., Smith, R. — Tue, 03 Feb 2009 18:00:54 PST

In 1998 childcare was for the first time put on the political map with the publication of the Green Paper `Meeting the Childcare Challenge' (DfEE, 1998), setting out the first National Childcare Strategy. Since then the childcare landscape has changed beyond recognition with a range of initiatives and considerable funding aimed at improving childcare services. A decade after its introduction, this article considers what the childcare strategy has achieved in relation to early years and what remains to be done to meet its key aim, that is: to provide good quality childcare for all parents who need it and all children who can benefit from it.

International Perspectives On Quality in Mixed Economies of Childcare

Penn, H. — Tue, 03 Feb 2009 18:00:54 PST

This paper briefly reviews international perspectives on quality in mixed economies of childcare. It explores the particular features of the childcare market and suggests that conventional economic rationales do not apply in such a market. It claims that, contrary to government predictions, competition in the private for-profit childcare sector does not lead to `quality' childcare.

Contextual Issues in Assessing Value for Money in Early Years Education

Campbell-Barr, V. — Tue, 03 Feb 2009 18:00:54 PST

Early years education has been attributed as having benefits for the public good, avoiding social stratification and acquiring human capital. Although these outcomes appear social, the focus on value for money highlights their economic undertones. However, an assessment of value for money in early years education has a number of tensions, not only in relation to how and for whom value is assessed, but also with regard to the marginalisation of the economic position of early years education providers and emerging evidence of both hidden and masked costs within the sector. Drawing on interviews with a range of stakeholders, it will be demonstrated, therefore, that there is a need to acknowledge wider contextual issues when making an assessment of value for money in early years education.

Using Foundation Stage Profile Assessments To Assess Outcomes From Early Years Education

Hopkin, R., Stokes, L., Wilkinson, D. — Tue, 03 Feb 2009 18:00:54 PST

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.

STATISTICAL APPENDIX

Thu, 05 Feb 2009 01:04:22 PST