Bulletin 4 AUGUST 1984

IN THIS ISSUE

Many of the articles focus on one of the central concerns of CEPR - the international economy and the functioning of individual open economies within it. Can the international economic and financial system deliver satisfactory macroeconomic performance unaided ? Does a decentralized system settle down smoothly to a macroeconomic equilibrium which has any desirable properties, or is it necessary for governments consciously to coordinate their economic policies?

This question has become more prominent during recent years. It was the subject of the CEPR/NBER conference held in June and summarised below. It is also touched on in Peter Neary's article on the consequences of natural resource discoveries. Several of the Discussion Papers deal with models in which the economic system does not settle down smoothly, but instead displays 'overshooting' or cyclical behaviour.

The Dutch Disease

Peter Neary, Director of the CEPR International Trade programme, discusses some of the macroeconomic consequences of natural resource discoveries.

International Policy Coordination

CEPR and the National Bureau of Economic Research recently held a conference to discuss theoretical and empirical work related to economic policy coordination. Many of those present thought that such policy coordination would be beneficial, but saw a major need for empirical studies to assess the potential gains. Current prospects for such coordination were thought to be rather dim. Others argued that there were examples, such as the European Monetary System, which showed that coordination could be both practical and beneficial.

Interwar Labour Markets

Are there any lessons to be drawn from the experience of the 1930s for today's policies toward unemployment? CEPR organized a one-day workshop in July to explore this subject. Patterns of behaviour in the labour market changed slowly in this period - even in response to strong economic pressures. Participants saw a clear need for cooperation in making data from this period more widely available, especially microeconomic data. Studies of particular segments of the labour force might give more insight than aggregate time series.

Discussion Papers

Mike Wickens discusses 'overshooting' models of the exchange rate and tries to give them a simpler and more natural interpretation.

Sweder van Wijnbergen analyses the effects of a budget deficit on interest rates and exchange rates.

Charles Bean analyses the effects of shifts in the terms of trade on the balance of payments.

Tim Hatton estimates a labour market model which captures elements both of the Phillips curve and the 'new classical' macroeconomics. The evidence does not seem strongly in favour of the latter.

Robert Gordon looks at the short run demand for money and concludes that many previous estimates really captured a mixture of money demand, money supply and other relationships.

Chris Doyle and Sweder van Wijnbergen analyse why 'tax holidays' are offered to multinational enterprises, suggesting that fixed or 'sunk' costs provide an explanation.