Showing papers in "National Institute Economic Review in 2008"
TL;DR: The authors showed that differences in children's intellectual, emotional and behavioural development by parents' socio-economic status emerge at early ages and that these differences cast a long shadow over subsequent achievements.
Abstract: There is growing evidence that differences in children's intellectual, emotional and behavioural development by parents' socio-economic status emerge at early ages and that these differences cast a long shadow over subsequent achievements. This article demonstrates with the Millennium Cohort Study that differences by parents' income group in cognitive and behavioural development emerge by the child's third birthday. It shows that an important part of these differences can be accounted for by `what parents do' in terms of educational activities and parenting style.
152 citations
TL;DR: In this paper, the authors present analyses of intergenerational social class mobility based on data from representative samples of the British population from 1972 to 2005, and distinguish between absolute and relative rates of mobility.
Abstract: We present analyses of intergenerational social class mobility based on data from representative samples of the British population from 1972 to 2005. We distinguish throughout between absolute and relative rates of mobility. As regards absolute rates, we find little or no change in total mobility rates over the period covered. In the case of men, there is also little change in rates of upward and downward mobility — in contrast with the middle decades of the twentieth century when upward mobility steadily increased while downward mobility fell. This latter pattern does, however, prevail in the case of women. As regards relative rates, we again find, for men and women alike, an essential constancy over time. This, then, indicates that such changes as are apparent in absolute rates derive from shifts in class distributions rather than from any significant increase or decrease in social fluidity. Our results are contrary to the prevailing view in political and media circles that in Britain today the level of...
126 citations
TL;DR: One of the features of the subprime crisis, that began in August 2007, was its unexpected nature It came as a surprise not only to most financial market participants but also in some degree to th
Abstract: One of the features of the sub-prime crisis, that began in August 2007, was its unexpected nature It came as a surprise not only to most financial market participants but also in some degree to th
112 citations
TL;DR: In this paper, a pathway model of transgenerational status attainment is conceptualised, taking into account the context as well as the timing of individual status transitions, and the influences of parental social status, childhood cognitive ability, school motivation and education on social status attainment in early adulthood using Structural Equation Modelling.
Abstract: This paper examines the influences of parental social status, childhood cognitive ability, school motivation and education on social status attainment in early adulthood Using Structural Equation Modelling (SEM), a pathway model of transgenerational status attainment is conceptualised, taking into account the context as well as the timing of individual status transitions The subjects were 3104 men and 3229 women who participated in the 1958 National Child Development Study and 3049 men and 2692 women from the 1970 British Cohort Study, following their lives from childhood to their mid-thirties The findings suggest that in both cohorts the number of years spent in full-time education is by far the most important determinant of status attainment among men and women and that there are persistent social inequalities in status attainment The findings furthermore confirm the hypothesis that social background and cognitive ability are partially mediated through school motivation and education, opening up lev
110 citations
TL;DR: The boundary problem as mentioned in this paper is a concern that effective regulation, one that actually bites, is likely to penalise those within the regulated sector, relative to those just outside, causing substitution flows towards the unregulated.
Abstract: The current financial crisis has raised queries about the adequacy of the present regulatory regime. Whilst the immediate priority may be to plug the obvious holes in the system, there are some long-term generic problems with almost any system of financial regulation. This paper explores one such concern, i.e. the boundary problem. This arises because effective regulation, one that actually bites, is likely to penalise those within the regulated sector, relative to those just outside, causing substitution flows towards the unregulated. This boundary problem impacts on many proposals, such as `narrow banking' and my own, with Avinash Persaud, for state and time-varying capital adequacy requirements. The question of how and where to set the boundary is considered. Such boundaries will always be criticised as leading to disintermediation, competitive inequality (no level-playing-field), inefficiency and higher spreads and borrowing rates; and such criticisms will be valid up to a point. The paper ends by dis...
82 citations
TL;DR: The financial crisis that started in August 2008 has reached a climax in the autumn of 2008 with a wave of bank nationalisations across North America and Europe as discussed by the authors. Although banking crises are not uncommon, this is the largest since 1929-33.
Abstract: The financial crisis that started in August 2008 has reached a climax in the autumn of 2008 with a wave of bank nationalisations across North America and Europe. Although banking crises are not uncommon, this is the largest since 1929–33. This paper discusses the build-up to the crisis, looking at the role of low real interest rates in stimulating an asset price bubble. That bubble was stocked by financial innovation and increases in lending. New financial products were not stress tested and have failed in the downturn. After discussing the bubbles we look at the collapse of the complex asset structure, and then put the crisis in the context of the literature. The paper concludes with a discussion of policy implications of the crisis, and advocates a significant improvement in the regulatory structure.
78 citations
TL;DR: In this paper, the authors used vector error correction models of Switzerland for forecasting output, inflation and the short-term interest rate and found that averaging over estimation windows is at least as effective as averaging over different models.
Abstract: This paper uses vector error correction models of Switzerland for forecasting output, inflation and the short-term interest rate. It considers three different ways of dealing with forecast uncertainties. First, it investigates the effect on forecasting performance of averaging over forecasts from different models. Second, it considers averaging forecasts from different estimation windows. It is found that averaging over estimation windows is at least as effective as averaging over different models and both complement each other. Third, it examines whether using weighting schemes from the machine learning literature improves the average forecast. Compared to equal weights the effect of alternative weighting schemes on forecast accuracy is small in the present application.
58 citations
TL;DR: In this article, the authors examined the relationship between intermediate outcomes (degree attainment, test scores and non-cognitive abilities) and parental income to forecast forward from these to estimates of intergenerational earnings correlations.
Abstract: This article seeks evidence on trends in intergenerational income for cohorts born after 1970. As many of these cohorts have not yet joined the labour market, we must look at relationships between intermediate outcomes (degree attainment, test scores and non-cognitive abilities) and parental income to forecast forward from these to estimates of intergenerational earnings correlations. We find no evidence that the relationship between these intermediate outcomes and parental income have changed for more recent cohorts. Evidence from the earlier 1958 and 1970 cohorts shows that as mobility declined in the past the relationship between intermediate outcomes and parental income strengthened. We therefore conclude that, under realistic assumptions and in the absence of any significant unanticipated changes, the decline in intergenerational mobility that occurred between 1958 and 1970 birth cohorts is unlikely to continue for cohorts born from 1970 to 2000. Mobility is therefore likely to remain at or near the relatively low level observed for the 1970 birth cohort.
52 citations
WIFO1
TL;DR: In this paper, the authors investigated the relationship between foreign ownership and innovation activities using the firm-level data of the third Community Innovation Survey (CIS) covering twelve European countries.
Abstract: In the present study we investigate the relationship between foreign ownership and innovation activities using the firm-level data of the third Community Innovation Survey (CIS) covering twelve European countries. Probit estimates based on 28,000 firms' observations show that foreign-owned firms are more innovative than domestic firms, particularly in the New EU Member States. However, results from the Blinder-Oaxaca decomposition of the differences in the percentage of innovating firms between foreign-owned and domestic firms reveals that the differences are mainly due to the different firm characteristics rather than the differences in coefficients. In particular, the dominance of foreign-owned firms in the largest firm size group is the main factor contributing to the gap in the percentage of innovators between foreign-owned firms and domestic firms. Furthermore, using the fractional logit model, we find that in the New EU Member states, foreign ownership has a positive and significant impact on the sh...
52 citations
TL;DR: The authors argue that central banks should lean against the wind in response to asset price bubbles, in which asset prices are a major driver of monetary policy. But they do not consider the effect of asset prices on economic growth.
Abstract: Recent events have highlighted the importance of asset prices to central bank decisions. We argue that, in response to asset price bubbles, central banks should `lean against the wind' (LATW hereaf...
45 citations
TL;DR: The 2007-8 banking crisis in the advanced economies has exposed deficiencies in risk management and prudential regulation approaches that rely too heavily on mechanical, albeit sophisticated, risk management models.
Abstract: The 2007–8 banking crisis in the advanced economies has exposed deficiencies in risk management and prudential regulation approaches that rely too heavily on mechanical, albeit sophisticated, risk management models. These have aggravated private and economic losses. While fiscal costs were at first limited, it remains to be seen to what extent the taxpayer will be protected. Policymakers and bankers need to recognise the limitations of rules-based regulation and restore a more discretionary and holistic approach to risk management.
TL;DR: In this paper, the NiGEM forecast is supported by the Institute's Corporate Members: Bank of England, HM Treasury, Mizuho Research Institute Ltd, Office for National Statistics, Santander (UK) plc, and by the members of the NIGEM users group.
Abstract: The production of this forecast is supported by the Institute's Corporate Members: Bank of England, HM Treasury, Mizuho Research Institute Ltd, Office for National Statistics, Santander (UK) plc and by the members of the NiGEM users group.
TL;DR: This paper provides a review which focuses on forecasting using statistical/econometric methods designed for dealing with large data sets and how these methods compare to other methods used in forecasting.
Abstract: This paper aims to provide a brief and relatively non-technical overview of state-of-the-art forecasting with large data sets. We classify existing methods into four groups depending on whether data sets are used wholly or partly, whether a single model or multiple models are used and whether a small subset or the whole data set is being forecast. In particular, we provide brief descriptions of the methods and short recommendations where appropriate, without going into detailed discussions of their merits or demerits.
TL;DR: The authors discusses the effects on growth of a systemic banking crisis as a result of debt defaults and investigates the impact on output of a permanent, regulation induced, rise in margins in the financial sector, taking into account the impacts of regulation on equity market valuations.
Abstract: The paper discusses the effects on growth of a systemic banking crisis as a result of debt defaults. These effects will come from the impact of credit rationing on consumption and credit and from the impacts of a significant rise in the spread between lending and borrowing rates for both producers and consumers. The analysis uses the dynamic stochastic general equilibrium version of the National Institute global model. The paper also investigates the impact on output of a permanent, regulation induced, rise in margins in the financial sector, taking into account the impacts of regulation on equity market valuations.
TL;DR: The authors evaluated the probability density forecasts reflected in the Bank of England's real GDP growth fan charts and found that there are problems with the shorter horizon forecasts, but conclusions about the performance of longer-term forecasts depend to some extent on the GDP estimates used in the assessment.
Abstract: This paper evaluates the probability density forecasts reflected in the Bank of England's real GDP growth fan charts. Evaluation is carried out using tests that allow for data dependence and using two GDP growth estimates. Results suggest there are problems with the shorter horizon forecasts, but conclusions about the performance of longer-term forecasts depend to some extent on the GDP estimates used in the assessment.
TL;DR: In this article, the authors assess the ability of the twelve new EU member states (NMS-12) to dampen the impact of shocks by means of macroeconomic wage flexibility.
Abstract: 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 correspondi...
TL;DR: This paper analysed the forecasts of inflation and GDP growth supplied by the individual respondents to the Bank of England's quarterly Survey of External Forecasters, 1996-2005, using a recently released dataset.
Abstract: This article analyses the forecasts of inflation and GDP growth supplied by the individual respondents to the Bank of England's quarterly Survey of External Forecasters, 1996-2005, using a recently released dataset. This comprises a conventional incomplete panel dataset, with an additional dimension arising from the collection of repeated forecasts for the last quarter of each year. This fixed-event forecast structure allows study of the forecast revision process, its weak and strong efficiency, and its relation to macroeconomic news. The collection of density forecasts as well as point forecasts allows study of the revision process of forecast uncertainty.
TL;DR: In this paper, the authors provide a comprehensive overview of the long-term factors that explain divergent price levels across developed and emerging European countries, and sketch out the possible mismatches between price level convergence and inflation rates.
Abstract: This paper seeks to provide a comprehensive overview of the long-term factors that explain divergent price levels across developed and emerging European countries. We provide stylised facts about the structural factors that influence market and non-market-based service, house and goods prices. The stylised facts show that there is much more behind differences in price levels among European countries than the much heralded Balassa-Samuelson effect and that prices other than those of market services are potential determinants of price levels and inflation rates in emerging Europe. Finally, we sketch out the possible mismatches between price level convergence and inflation rates.
TL;DR: In this article, the authors investigated 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.
Abstract: 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 eff
TL;DR: In this paper, the impact of increases in oil prices on growth depends in part on the reasons for the increase, with the effects of supply reduction induced increases in prices being more negative than demand induced increases.
Abstract: Over the past fifteen months oil prices have steadily risen from around $60 a barrel to over $100, as we can see from Figure 1. The projections in our forecast are based on information from futures markets and on projections by the US Energy Information Administration, and as prices have risen there has been increasing evidence that they are considered to be overshooting a sustainable position, as can be seen from our projections for oil prices. Oil prices are expected to fall back to $90 a barrel by the end of 2009. Hence the current oil price shock can be seen as a combination of a temporary increase and a permanent increase in oil prices. The impact of increases in oil prices on growth depends in part on the reasons for the increase, with the effects of supply reduction induced increases in prices being more negative than demand induced increases in prices. A supply reduction involves a loss of revenue for producers as compared to a fixed volume demand induced rise in oil prices, and hence a supply reduction would result in lower levels of imports by oil producers.
TL;DR: It is also common to suggest that interest rate policy should be set to constrain bubbles such as those in housing markets in recent years as mentioned in this paper, but it is difficult for the central bank to use interest rates to restrain a bubble, and it is also inappropriate if inflation is under control.
Abstract: Crises have a common shape but not always common consequences, as Barrell and Davis (2005) discuss. Asset bubbles are associated with the run-up to most crises and regulators should respond, taking an asset bubble as a signal of a need for precautionary action. It is easy to say that fundamentals have changed an asset market, and hard to spot a bubble. It is also common to suggest that interest rate policy should be set to constrain bubbles such as those in housing markets in recent years. Not only is it difficult for the central bank to use interest rates to constrain a bubble, it is also inappropriate if inflation is under control. It is for the financial market regulator, which may or may not be in the central bank, to respond to the bubble and strengthen its precautionary measures designed to raise lending standards.
TL;DR: Barrera and Pomerantz as mentioned in this paper have shown that real oil prices have risen almost to the level seen in around 1980, as can see from figure 1. But there has, however, been no resurgence of inflationary pressure on the scale that was observed in the mid-1970s and early 1980s in response to oil price increases.
Abstract: Between NIESR's October 2007 and January 2008 global economy forecasts, oil prices rose by almost $20 per barrel, and they averaged $86 a barrel in the fourth quarter of 2007, as against our assumption of $71 a barrel. In the first quarter of 2008 we project that they will average $90 a barrel, $19 above the level we projected in October. Real oil prices have risen almost to the level seen in around 1980, as we can see from figure 1. There has, however, been no resurgence of inflationary pressure on the scale that was observed in the mid-1970s and early 1980s in response to oil price increases. This has been much as we anticipated, as is discussed in Barrell and Pomerantz (2004), and our model simulation results reflect the changed environment in which the increase has taken place.
TL;DR: In this article, the authors look at the impacts of recent increases in oil prices on the path for real wages by investigating the share of fossil fuels in costs, and investigate the impact on oil prices of the growth in demand outside the OECD.
Abstract: Since our last forecast in April 2008 there have been further increases in oil prices, as is illustrated in figure 1, which tracks oil price projections in our forecasts this year, and compares them to the projection we made in January and July 2007. Over the past eighteen months oil prices have risen from around $60 per barrel to a currently projected level of $123 in 2009. Oil prices have recently reached a peak of $145.6 a barrel before falling back to around $134. Our projection for the short term is based on those of the US Energy Information Agency and uses information from forward markets as well as an evaluation of supply conditions. In the longer term we presume that real oil prices will rise in line with the real interest rate, as is discussed on pp. 4–7 of this Review. This note looks at the impacts of recent increases in oil prices on the path for real wages by investigating the share of fossil fuels in costs. It also evaluates the impact of the rise in prices since our last forecast, and investigates the impact on oil prices of the growth in demand outside the OECD.
TL;DR: The authors reviewed recent Institute work on the factors that might affect the future evolution of consumption and discussed the evidence for the effects of housing wealth on consumption, and showed that there has been strong and well supported evidence for a link for some time.
Abstract: 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.
TL;DR: In this article, the authors estimate and simulate sustainable real exchange rates in a sample of EU member countries and find vulnerabilities connected to the adoption of the euro if the rate vis-A-vis the euro were to be fixed with weak fundamentals and inappropriate policies.
Abstract: Estimation and simulation of sustainable real exchange rates in a sample of EU member countries find vulnerabilities connected to the adoption of the euro if the rate vis-A-vis the euro were to be fixed with weak fundamentals and inappropriate policies Sample countries have benefited from dramatic improvements in their external positions, in part driven by inflows of foreign direct investment As a result, exchange rate misalignments have narrowed in most countries and, looking ahead, are expected to narrow further These results are conditional, however, on optimistic projections with respect to world import demand and foreign direct investment inflows
TL;DR: In the United Kingdom the gap between the Bank Rate and money market rates has re-opened and is described as indicative of a reluctance of banks to lend to each other as discussed by the authors.
Abstract: The past few weeks have seen an intensification of the banking crisis in the United States, with the near failure of Bear Sterns, although some commentators hopefully say that the worst has now passed. In the United Kingdom the gap between the Bank Rate and money market rates has re-opened and is described as indicative of a reluctance of banks to lend to each other. In this commentary we seek to explain the fundamental factors behind recent developments in UK lending markets. We begin by describing the recent experience of the financial services industry in the United Kingdom and putting the crisis, which has been described as the worst since the Second World War, into some sort of perspective.
TL;DR: In this paper, the reliability of first-release data on the components of UK aggregate demand by looking at forecasts of the probability of substantial data revisions is investigated, as well as the estimation of the output gap, illustrating the uncertainty surrounding its measurement through density forecasts.
Abstract: An overview is provided of the issues raised in the recent literature on the use of real-time data in the context of nowcasting and forecasting UK macroeconomic events. The ideas are illustrated through two specific applications using UK real-time data available over 1961-2006 and prroviding probability forecasts that could have been produced in real time over the past twenty years. In the first, we consider the reliability of first-release data on the components of UK aggregate demand by looking at forecasts of the probability of substantial data revisions. In the second, we consider the estimation of the output gap, illustrating the uncertainty surrounding its measurement through density forecasts and focusing on its interpretation in terms of inflationary pressure through an event probability forecast.
TL;DR: The recent national accounts showed the United Kingdom to be running a balance of payments deficit of 5.7 per cent of GDP in the third quarter of 2007, matching the record deficit incurred in 1988/9.
Abstract: The recent national accounts showed the United Kingdom to be running a balance of payments deficit of 5.7 per cent of GDP in the third quarter of 2007, matching the record deficit incurred in 1988/9. In the period up to 1972, when exchange rates were fixed, a balance of payments deficit was a cause for concern, since there was the risk that it would not eventually be possible to meet the gap between imports and exports. The willingness of foreigners to invest in the United Kingdom might be limited and the foreign exchange reserves, which could be used to pay for imports, definitely were. With the change to floating exchange rates the exchange rate adjusts to clear the market. A balance of payments deficit does not then raise the same concerns, and this sometimes leads to the view that it is not very important. What should we make of the current balance of payments situation and what is it telling us about the state of the economy?
TL;DR: Sterling has also weakened against other currencies in the past few months, and in January reached its lowest point against the euro (or its equivalent) since the last quarter of 1996, as can see from figure 1, which uses the first three weeks of January 2008 as an indicator of the value that will be achieved in the whole first quarter as mentioned in this paper.
Abstract: Sterling has fallen markedly against other currencies in the past few months, and in January reached its lowest point against the euro (or its equivalent) since the last quarter of 1996, as we can see from figure 1, which uses the first three weeks of January 2008 as an indicator of the value that will be achieved in the whole first quarter. Sterling has also weakened against the dollar in the past few months, although it remains at a high level. In effective terms, sterling fell on average by 2.5 per cent in the fourth quarter, and in early January it was more than 6 per cent lower than the average for the previous quarter. The fall was largely unanticipated, and the effective exchange rate for the first quarter of 2008 is more than 7 per cent below where we assumed it would be in October 2007.