David Rae

The Concept, Policy Use and Measurement of Structural Unemployment

The structural rate of unemployment and associated non-accelerating inflation rate of unemployment (the NAIRU) are of major importance to the analysis of macro and structural economic developments, although in practice these concepts are not well defined and there is considerable uncertainty and controversy concerning their measurement and policy use. The present paper reviews a range of conceptual and analytical issues and related empirical studies to examine the usefulness and limitations of such concepts. A reduced-form Phillips curve approach is found the most suitable conceptual framework for representing the NAIRU as currently used by the OECD in its policy analysis and surveillance work. Three distinct classes of NAIRU concept are identified, distinguished by the time-frame in which they are defined, which map directly into the broad requirements for macro and structural policy analysis. In line with a number of recent empirical studies, this general approach is applied ... Les concepts de taux de chomage structurel et NAIRU (non accelerating inflation rate of unemployment) jouent un role important pour l’analyse macro-economique et des developpements structurels de l’economie, meme si, en pratique, ces concepts ne sont pas definis precisement, leur estimation est entachee d’incertitude et leur utilisation pour la politique economique souvent controversee. Ce papier presente une revue des concepts, discussions analytiques et etudes empiriques lies au NAIRU, afin de definir l’utilite eventuelle de ces concepts et leurs limites. Dans le cadre d’analyse des politiques economiques et travaux de surveillance menes par l’OCDE, le concept de NAIRU derive d’une courbe de Phillips de forme reduite apparait le plus utile. Trois notions de NAIRU peuvent etre distinguees, suivant l’horizon temporel de reference, et qui peuvent etre directement reliees a des cadres d’analyse de politique macro-economique et structurelle. Suivant les developpements recents de la ...

Globalisation and the European Union

Globalisation can be a threat or an opportunity, depending on a country’s trade mix and its economic and regulatory structure. This paper assesses which EU countries are most exposed to globalisation using, among other indicators, measures of revealed comparative advantage. It then looks at which countries are best placed to cope. This depends on labour and product market flexibility, the average skill level of the workforce, the innovation framework, the quality of the education system and the level and type of support, such as job-search assistance, that is given to those who are harmed by globalisation. This paper relates to the 2007 Economic Survey of the European Union(www.oecd.org/eco/surveys/eu). Mondialisation et Union europeenne : quels sont les pays les mieux places pour y faire face ? La mondialisation peut etre une menace ou une opportunite, selon la composition des echanges des pays, leur structure economique et leur reglementation. Cet article evalue les pays de l’UE qui sont les plus exposes a la mondialisation en utilisant, parmi d’autres indicateurs, des mesures des avantages comparatifs reveles. Il examine ensuite quels sont les pays les mieux places pour faire face a ce defi. Ceci depend de la flexibilite des marches du travail et des produits, du niveau de qualification moyenne de la main-d’oeuvre, du cadre concernant l’innovation, de la qualite du systeme educatif et des niveaux et types de soutien, comme les aides a la recherche d’un emploi, qui sont mises a la disposition de ceux qui ont subi des prejudices a cause de la mondialisation.

New Zealand's foreign exchange market and the nature of expectations

This paper confirms the forward premium puzzle, or the failure of uncovered interest parity, in New Zealands foreign exchange market. The rejection of the risk‐neutral rational expectations hypothesis is traced to two sources. First, there is evidence of a time‐varying and possibly non‐stationary risk premium in the forward market, and this premium appears related to volatility in the spot NZD market. Second, survey data is used to show that exchange rate expectations are not rational. The paper speculates that exchange rate expectation errors may be related to systematic errors in forecasting inflation or the stance of monetary policy. Exchange rate expectations are revised following inflation ‘surprises’ but these inflation surprises themselves show systematic patterns and therefore rationality of inflation expectations can also be rejected. There is also evidence that a lack of full credibility of the central banks inflation targeting regime may have affected inflation expectations, and therefore be a factor in the apparently non‐rational behaviour of the forward market.