Geoffrey Williams

Long-term nominal interest rates and domestic fundamentals

Abstract This paper investigates the information content of domestic macroeconomic developments for the determination of nominal long-term interest rates in the G7. We show that when an econometric methodology is followed, which takes into account the stationarity, cointegration, and exogeneity features of the data, well-specified equations can be estimated, which confirm the importance of fiscal and monetary developments in the determination of long-term interest rates. The results are contrary to those that one would expect from standard finance theory, which suggests that interest rates are determined by market participants. They reveal that inflation uncertainty and the quality of debt are important factors in each of the countries considered. In addition, there is a high degree of uniformity in the structure of the estimated relationships, suggesting that economic performance is of greater importance than institutional diversity in the determination of long-term rates.

Monetary Policy and Financial Liberalization: The Case of United Kingdom Consumption

This paper outlines work done recently to investigate the impact of financial liberalization on monetary policy effectiveness. We look at the case of United Kingdom consumption behavior, in particular the savings ratio. Over the 1990s, this sector has been heavily influenced by comprehensive deregulation of the U.K. financial services industry, which has caused stable long-run relationships for the U.K. consumption function to shift significantly. We analyze the relationship between financial liberalization and consumption by evaluating and extending a forward-looking model in which the degree of financial deregulation influences the behavior of two groups of consumers: those constrained to consume from current income only and those able to borrow on the basis of expected future income flows. We show that specifications incorporating such features capture recent U.K. behavior reasonably well and pick up the main shifts in the savings ratio. We also show that changes in the extent of financial regulation cause the transmission of monetary policy to alter in important ways that have implications for the way in which monetary policy should be implemented.

Measuring the economic benefits from R&D: improvements in the MMI model of the United Kingdom National Measurement System

The benefits and priorities of public funding of R&D programmes are the subject of considerable research and debate and a number of methodologies have been suggested which might allow us to arbitrate on the issues involved. This paper looks at one method that is actually used in practice to evaluate and rank publicly funded R&D programmes in the UK. We describe the improvements that have been made to the mapping measurement impact (MMI) model, which is used by the UK Department of Trade and Industry to assess the economic benefit to industry of different research projects funded as part of the United Kingdom National Measurement System. The model has been in use for more than 5 years as a means to compare publicly funded R&D programmes. It allows evaluation of their benefit and prioritisation of future funding schemes and has potential for wider application in other areas of public R&D investment both inside and outside the UK.

Infra-technology and economic performance: evidence from the United Kingdom measurement infrastructure

Abstract This paper investigates the impact on the United Kingdom of the measurement activity that provides the basic underpinning technology, or infra-technology, for a diverse set of economic activities. Using data on R&D, patents and input–output relationships we track the nature and extent of spillover effects from measurement technology into the wider economy. The results show that measurement R&D has a significant impact, equivalent to around 2% of GDP. This benefit is economy wide but is particularly important for certain high technology and other industries. The presence of a measurement infrastructure is also important in supporting investment and export activity.

Can Interest Rate Policy be Independent

The conventional view is that interest rates are closely linked internationally and that larger countries determine monetary policy in smaller countries. In this article, Guglielmo Maria Caporale and Geoffrey Williams argue that this stylisation may not be accurate. The fundamental factors determining long-term interest rates are likely to be national rather than international. It may therefore be possible for domestic monetary authorities to pursue an independent interest rate policy indefinitely.

UK Consumer Spending: Prospects for the Late 1990s

Over the last eighteen months, strong growth of personal consumption has fuelled the growth of the UK economy raising fears of a 1980s style consumer boom. The boost to consumption provided by “windfall gains” from building society conversions has added to these fears. In this article, Guglielmo Maria Caporale, Andrew Sentance and Geoffrey Williams discuss the forces behind this recent pick-up in consumption and assess the prospects for consumer spending in the late 1990s.

Reviewing Bank of England Independence: The Report of the Bank of England Commission

In this article, Geoffrey Williams outlines the main findings and recommendations of the independent Bank of England Commission set up by the Conservative Party to review the performance of the United Kingdom’s monetary policy framework. Its final report published earlier this month, recommended that operational independence of the Bank of England should be retained but that important improvements can be made to how policy is conducted. These include even greater transparency in policy decisions, changing the inflation target and creating a new Parliamentary Committee and possibly a new Council of Economic Advisers to provide for the UK the clearest possible democratic and professional scrutiny of economic policy.

The Yen as an International Currency

Japanese policy-makers have spent many years attempting to increase the role of the Yen as a regional and international currency. In this article Francis Breedon and Geoffrey Williams look at its role both before and after the Asian currency crisis. Pre-crisis they find that the Yen was of less regional importance than economic theory would suggest, so that its rapid depreciation from 1995 to 1997 did not influence regional currencies as much as it perhaps should have. Since the Asian crisis they find that its regional role has increased markedly, largely at the expense of the Dollar. This suggests that Yen volatility, which remains considerable, is likely to have more impact on regional Dollar exchange rates and thus less impact on real activity than before.

How High do UK Interest Rates Need to Rise

The Bank of England has inherited the responsibility for monetary policy at a difficult time. The UK economy has picked up strongly over the last year, but the pound has surged ahead. Consumer windfalls are also boosting the growth of domestic demand though their impact is uncertain. In this article, Andrew Sentance and Geoffrey Williams sift through the evidence relating to the Bank of England’s interest rate dilemma. At present, interest rates appear close to their peak. But that judgement needs to be kept under review as new evidence unfolds about the momentum of domestic demand and the impact of the strength of the pound.