Bulletin 28  AUGUST 1988

IN THIS ISSUE...

This issue of the Bulletin contains reports of two major conferences held by CEPR, each addressing fundamental questions concerning the evolution of the industrialized economies in the longer term. The Council of Europe recently appointed a high-level committee to study the means of achieving European economic and monetary union. A June conference examined the question of a more integrated European monetary authority from the perspective of both economic analysis and economic history. The second conference explored the implications of `ageing' populations the growing numbers of the elderly in the OECD countries. The discussion focused on the need to maintain equity in transfers between age-groups and between birth cohorts, so as to preserve the implicit social contract between generations. Volumes based on the proceedings of both conferences will be published in 1989.
News

Recent appointments and grants received by the Centre.

A European Central Bank?

The Italian Macroeconomic Policy Group and CEPR held a conference in June to explore the issues of monetary unification and a European central bank. Papers analysed the question of `optimum currency areas', problems of coordinating central banks' policies in a monetary union, the effects of lost seigniorage that such a union might entail, and the possible obstacles to the creation of a European central bank. There were also historical analyses, which drew lessons from monetary unification and the establishment of central banks in Germany, Italy and the US.

Workers Versus Pensioners

The ageing of the populations of all developed countries has stimulated lively debate, some of which has focused on the potential for conflict among generations. Participants at a July conference discussed theoretical approaches to intergenerational conflicts, cross-country differences in the evolution of pension systems, the future of retirement, and the role of the state and the family in caring for the elderly.

Discussion Papers

Error correction models have found widespread use in model-building. Mark Salmon analyses the conditions which the structure of such a model must satisfy if it is to be consistent with a long-run equilibrium specification. He draws on the concept of the `internal model principle'.

Richard Gilbert and David Newbery argue that analyses of regulatory systems must take into account the continuing nature of the relationship between utility and regulator. The relationship must therefore be modelled as a repeated game.

Olympia Bover, John Muellbauer and Anthony Murphy explore the role of housing markets in explaining the persistence of high unemployment in the UK. They find that regional differentials in house price to earnings ratios reduce labour mobility by trapping home-owners in regions of high unemployment and low house prices, so having a significant effect on wages and unemployment.

Guido Tabellini and Alberto Alesina examine how the uncertainty of re-election increases the government's incentive to run a budget deficit. Although ex ante a `balanced-budget' constitutional amendment may be desirable, it may prove politically unsustainable.

Barry Eichengreen and Richard Portes argue that institutional factors, such as competition among creditors with differing interests, may be among the most important factors in determining how long it takes to resolve the problems of default. In another paper, they find that rates of return on sterling loans floated in the 1920s significantly out-performed those on dollar loans.

Simulation and optimal policy design using large non-linear models which incorporate rational expectations are computationally burdensome. Nicos Christodoulakis, Jessica Gaines and Paul Levine demonstrate that accurate linear approximations to such large models can be constructed and used for optimal policy design.

Patrick Minford and Paul Ashton use a large microeconomic data set to explore the role of the `poverty trap' in affecting the incentives to work. They also analyse the incentives to work facing high-rate taxpayers.