Bulletin 21 JUNE 1987

IN THIS ISSUE...

The Centre's third conference volume is published on July 9. Threats to International Financial Stability is a collaborative venture with the International Center for Banking and Monetary Studies in Geneva. This issue of the Bulletin carries details of the volume, which you can order using the form enclosed. International perspectives also featured prominently in a May conference on interwar labour markets, reported in this issue. Recent lunchtime meetings have had a less international focus, concentrating instead on UK policy questions, such as the regulation of UK commercial broadcasting, the allocation of resources to local authorities and the health service, road user charges in the UK and the effect of exchange rate fluctuations on UK exports.

Interwar Unemployment

The rise in unemployment throughout the world during the 1980s has generated renewed interest in the interwar period. A May conference examined 1930s labour markets from an international perspective, using new and more disaggregated data.

Lunchtime meetings

At a May lunchtime meeting, Cento Veljanovski urged that the basis of commercial broadcasting regulation in the United Kingdom should be reconsidered. The current system of regulation had little justification and restricted competition and consumer choice. Veljanovski discussed his own comprehensive proposals for reform, which included the purchase and sale of broadcasting franchises , subject to only minimal regulatory constraints.

John Hobcraft's talk concluded the CEPR/BSPS series of lunchtime meetings on demographic research. He argued that the formula used to allocate resources to local government and regional health authorities was based on data which were incomplete, unreliable and often years out-of-date.

The present system of road user charges in Britain has little theoretical justification and underestimates the true cost of road use for most classes of vehicles, David Newbery argued at a June lunchtime meeting. He presented new calculations of 'efficient' user charges which took into account the costs of congestion and accidents; these efficient charges differed substantially from those levied under the present system.

Charles Bean's analysis of UK exports since 1900 suggests that a 20% loss of competitiveness results in a permanent reduction of 3% in the level of UK exports. A temporary appreciation of the exchange rate could lead to a fall in exports which would not be reversed even if the exchange rate returned to its previous level.

Discussion Papers

Frederick van der Ploeg and Theo van de Klundert examine exchange rate overshooting models which have explicit microeconomic foundations. They analyse monetary and fiscal policy under a variety of assumptions concerning labour market disequilibrium and capital mobility.

Frederick van der Ploeg finds that international policy coordination can be counterproductive if governments are not committed to carry out their announced policies.

Michael Beenstock applies a new theory of choice under uncertainty to the analysis of union wage demands . Ratchet effects arise in these new models: an increase in labour demand may trigger a series of wage bargaining rounds, an escalation of wages and rising unemployment which a fall in demand will not reverse.

Michael Beenstock and Michael Parker estimate a model of the household's choice between employment and unemployment, part of a larger model which can be used to simulate the effects of tax and benefit reforms .

Michael Artis and Shaziye Gazioglu explore the effects of financial integration and cross-country differences in wage-price behaviour on the behaviour of the EMS .

Paul Baker, Richard Blundell and John Micklewright model the domestic demand for energy in the UK at a microeconomic level, using household expenditure data from the FES.

Jacques Melitz examines whether the benefits of EMS membership can be explained in terms of the greater monetary discipline provided by Germany. The EMS is an attractive method of reducing inflation only under very stringent conditions, Melitz concludes.

John Ermisch and Heather Joshi explore the likely consequences of a stagnant or declining population in Europe .

Michael Wickens and Steve Thomas argue that the dollar's role as a vehicle currency in world debt transactions plays an important part in explaining its dramatic appreciation between 1980-5.

Appearances are deceptive, according to Colin Mayer. The apparent efficiency of UK financial markets may not be conducive to the provision of long-term risk capital to the corporate sector. Mayer's calculations suggest that the UK stock market has made a negative net contribution to capital formation in the United Kingdom. In another Discussion Paper he argues that the choice between public and private ownership should reflect the relative importance of flexibility versus commitment in consumption and investment decisions.

George Alogoskoufis explores how the design of stabilization policy in an open economy depends on the information available to policy-makers.

George Alogoskoufis analyses the roles of international competitiveness, government expenditure and oil price changes in UK business cycles .