Brian Henry

Fiscal Policy in the UK

Although the conduct of macroeconomic policy in the UK has been very good by historical standards, Brian Henry argues in this article that there are shortcomings in the framework which mean it is less well suited to adverse shocks than it should be. He recommends that an extension of the present framework be made setting up a committee charged with the independent assessment of fiscal policy. This would help mitigate the lack of balance between monetary and fiscal policy which is evident at present. Fiscal judgements based on cyclical adjustments are too heavily dependant on domestic factors and underestimate the effects of the cycle on revenues. In consequence, fiscal policy, rather than supporting monetary, has been loosened and this indirectly accounts for the continuing strength of the exchange rate.

The Crisis in Russia: Some Initial Observations

In this article, Brian Henry and James Nixon argue that the sources of the recent crisis in Russia have been developing for some time. Declining productivity, an overvalued real exchange rate, and a chronic fiscal imbalance were the backcloth to the events in the Summer. The reliance on short term government borrowing, and the exposed state of the banking system were further consequences of this long running malaise. Prospects for the immediate future are bleak. If any improvement is to be made in the medium term serious structural improvement in the government finances and the real economy will be necessary.

Coordination and price shocks: an empirical analysis

Abstract This paper outlines a new technique, which makes optimal control in a stochastic minimum variance framework computationally feasible. The new approach is then used to evaluate gains to policy coordination in the context of a macroeconometric model for the G-3. More specifically, we consider policy responses to a temporary price shock in a single country and in multi-country cases. The results show that coordination brings about a striking improvement in the overall control of inflation and a reduction in output costs.

Central Bank Independence and Co‐ordinating Monetary and Fiscal Policy

In this article, Stephen Hall, Brian Henry and James Nixon review the arguments that granting a central bank independence to set monetary policy leads to low inflation. An important extension to the standard analysis considers the problem which may arise if monetary and fiscal policy are then not co-ordinated. A strategic analysis is needed to assess this. Using such a framework in an empirical analysis, the authors find that an uncoordinated policy may lead to less growth than a co-ordinated policy, and the main effects of this lack of co-ordination are an overvalued exchange rate and a reduction in net trade.

Forecasting employment: The role of forward-looking behaviour

Abstract Manufacturing output per head rose at an unprecedented rate in the UK in 1981/2, and conventional econometric relationships failed to forecast the associated falls in employment. In this paper we estimate manufacturing employment equations in which output expectations play a central role. These compare fabourably with alternative models, and are able to predict most of the large falls in employment over this period.

Exchange Rate and Foreign Price Effects on UK Inflation

The issue of incomplete pass-through from exchange rate changes to domestic inflation has received considerable attention. Most models try to account for this by using a variety of assumptions about the costs of changing prices. These suggest complete pass-through, but only after the possible elapse of a considerable delay. In contrast, in this article Graeme Chamberlin and Brian Henry provide evidence that exchange rate effects on inflation may be non-linear and, more specifically, subject to thresholds. Their tentative results suggest this may be important in describing price-setting behaviour in the UK.

Prospects for the Euro: Why has it been so Weak?

In this article, Stephen Hall and Brian Henry consider the reasons for the Euros weakness since its introduction and ask what are the likely prospects for a recovery to near-fundamental levels over the medium term. They conclude that the major factor leading to the currencys depreciation since 1999 has been a rise in the risk premium surrounding the Euro. A successful launch of Euro notes and coins may help to eliminate this premium.

Russia: Collapse and Recovery

The financial collapse in Russia in the summer of 1998 was a profound shock to the efforts to reform the Russian economy. It was also thought that it would seriously worsen the short- and medium-term outlook for growth and inflation. In this article, Brian Henry and Evgeny Gavrilenkov argue that the most recent data show that the more pessimistic of these views were probably misplaced; modest but significant growth has been evident since the collapse without substantial increases in inflation. The real improvements, in so far as they are simply the results of devaluation and the beneficial effects of the increase in the world oil price, could prove to be temporary, although there are more hopeful indicators with the recent increases in investment. But to ensure sustainable recovery, fundamental improvements in the structure of the economy, especially in the areas of industrial and financial restructuring, are needed. Meanwhile, they argue that it would be very beneficial for medium-term prospects if progress is made on the twin problems of external debt reduction and tax reform.

Applied Economics and Public Policy: MODELLING AND FORECASTING METHODS

Applied economics is both an art and a science. It requires a sound knowledge of economic theory, statistical techniques and data sources, together with an appreciation that behavioural changes can alter apparently established economic relationships. In this book leading economists illustrate the diversity of the subject, and present a series of studies that demonstrate a range of techniques and their applications to economic policy. It contains chapters which explore approaches to macroeconomic modelling analyses of corporate performance, new estimates of the evolution of incomes in the UK since the eighteenth century and assessments of the role of applied economics in guiding macroeconomic policy. All the chapters were specially commissioned to mark the fiftieth anniversary of the Department of Applied Economics at the University of Cambridge, and the contributions to the book are a fitting tribute to the work instigated by Sir Richard Stone and carried forward by his successors.

Applied Economics and Public Policy: COMBINING DATA AND ANALYTIC TECHNIQUES

Applied economics is both an art and a science. It requires a sound knowledge of economic theory, statistical techniques and data sources, together with an appreciation that behavioural changes can alter apparently established economic relationships. In this book leading economists illustrate the diversity of the subject, and present a series of studies that demonstrate a range of techniques and their applications to economic policy. It contains chapters which explore approaches to macroeconomic modelling analyses of corporate performance, new estimates of the evolution of incomes in the UK since the eighteenth century and assessments of the role of applied economics in guiding macroeconomic policy. All the chapters were specially commissioned to mark the fiftieth anniversary of the Department of Applied Economics at the University of Cambridge, and the contributions to the book are a fitting tribute to the work instigated by Sir Richard Stone and carried forward by his successors.