Bulletin 14  APRIL 1986

IN THIS ISSUE...

This issue of the Bulletin blends economic theory with applied studies of international economic policy issues. In the lead article Patrick Minford assesses the implications of the rational expectations hypothesis for monetary policy. An April lunchtime meeting saw the launch of the Centre's latest book, entitled Natural Resources and the Macroeconomy. Other lunchtime meetings reported in this Bulletin have examined cross-country comparisons of the trade-off between unemployment and inflation, the international coordination of economic policies, the scope for negotiating reductions in non-tariff barriers to trade, and unemployment, malnutrition and inequality in LDCs. Recent Discussion Papers have focussed on international macroeconomic issues, including responses by the rest of the world to changes in US macro policy, the design of stabilization policies in LDCs, and modelling the EMS.

Rational expectations and monetary policy
The rational expectations hypothesis has radically transformed our understanding of monetary policy and its ability to stabilize the economy. But Patrick Minford concludes that these new insights leave the theory of monetary policy more of a mystery than ever.

Cross-section econometric models
Cross-section econometric models are of increasing relevance to policy problems. Recent advances in evaluation techniques for such models were the subject of a March workshop at the Centre.

Lunchtime meetings

Non-tariff barriers to trade
Both developed countries and LDCs have an interest in reducing NTBs, argued Alan Winters at a March lunchtime meeting. He suggested that the pattern of the early GATT negotiations could provide a model for NTB negotiations.

Inflation and unemployment
Michael Bruno told a lunchtime meeting in March that exchange rate fluctuations have been the major determinant of recent inflation. Labour market characteristics such as wage flexibility and corporatism are also important to the inflation-unemployment trade-off.

Coping with oil shocks
The allegedly harmful effects of resource-based booms have been termed the Dutch Disease, the subject of CEPR's latest book, Natural Resources and the Macroeconomy. At an April lunchtime meeting, the book's co-editors, Peter Neary and Sweder van Wijnbergen, discussed its implications for policy.

Rigidity or inequality?
Unemployment is often blamed on labour market rigidities in both developed and less developed countries. At an April meeting, Partha Dasgupta argued that in LDCs the unequal distribution of assets such as land played a major role in unemployment and malnutrition. Measures to reduce inequality might actually increase growth.

Prospects for coordination
The experience of floating exchange rates and increased awareness of the potential benefits of cooperation have put macro policy coordination high on the international agenda, argued Michael Artis and Richard Portes at an April lunchtime meeting. But economic summitry, they warned, is likely to play only a secondary role in bringing about greater policy coordination.

Discussion papers
Willem Buiter analyses how macro policy in the rest of the world should respond to changes in US monetary and fiscal policy.

Willem Buiter explores the issues involved in the design of stabilization policy in the LDCs.

David Currie and Paul Levine find that a government's concern for its reputation can make an important difference to the credibility of its announced policies.

Willem Buiter shows that without fundamental fiscal reform, borrowing to replenish foreign exchange reserves will not deter speculative attacks on a fixed exchange rate regime.

Jacques Melitz and Philippe Michel model the 'mysterious stability' of the EMS. In another Discussion Paper Jacques Melitz predicts that EMS stability could be threatened by the current depreciation of the dollar.

Andrew Hughes Hallett explores the effects of price stabilization schemes in the copper market. More stable prices, he finds, can result in resource transfers from countries of the South to those of the North.

Leslie Hannah looks into the future for occupational pension funds after the forthcoming legislation.

Richard Portes surveys issues of finance, trade and development in the light of the Anglo-American 'special relationship'.

David Newbery argues that the privatization of British Gas should be accompanied by increased competition and integration with Continental markets for gas.

David Currie and Paul Levine examine whether agreements to coordinate economic policies can be sustained in the face of temptations for governments to renege on their policies.