Does monetary policy really face a zero lower bound or could policy rates be pushed materially below zero per cent? And would the benefits of reforms to achieve negative policy rates outweigh the costs? This column, which reports the views of the leading UK-based macroeconomists, suggests that there is no strong support for reforming the monetary system to allow policy rates to be set at negative levels.
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, Sunday, August 2, 2015
Terence Cheng, Joan Costa-i-Font, Nattavudh Powdthavee, Friday, July 31, 2015
Economists have traditionally viewed healthcare as a luxury good – consumption of it will increase more than proportionally as income rises. This column challenges this view, exploiting the windfall of lottery winnings to estimate elasticities for healthcare demand in the UK. Results suggest that income elasticities for public healthcare services are close to zero. A medium to large windfall is found instead to increase the uptake of private health insurance and preventative services. This suggests that rising incomes will increase private sector demand, but will leave public healthcare demand unchanged.
Jim Tomlinson, Sunday, July 5, 2015
In Britain today, a majority of those in poverty live in working, rather than non-working, households. This challenges the long-held notion that paid work offers a route out of poverty. This column argues that structural changes in the labour market have brought about profound changes in the social security system. A failure to acknowledge these underlying changes means that dialogues about the political direction of the British economy can be problematic and potentially misleading.
Gianmarco I.P. Ottaviano, Giovanni Peri, Greg C. Wright, Wednesday, June 17, 2015
International trade in services and immigration are among the fastest growing aspects of globalisation. Using UK data, this column explores the links between these phenomena. Immigrants promote exports of final services to their home countries, while also reducing imports for some intermediate services, and bringing productivity gains to the labour market. In designing immigration policies, it is important that the potential impact on exports and offshoring activities are carefully considered.
Rena M. Conti, Ernst Berndt, David H. Howard, Wednesday, March 25, 2015
Total US prescription drug spending rose 13% in 2014, the biggest increase in a decade. Driving this trend is spending on branded specialty drugs, which rose an unprecedented 31%. This column discusses recent research into the relationship between inflation-adjusted launch prices and survival benefits and approval year for 58 anticancer drugs approved in the US between 1995 and 2013. The authors find that launch prices are going up by $8,500 per year, approximately 12% year over year.
Neil Lee, Andrés Rodríguez-Pose, Tuesday, February 17, 2015
Creativity is assumed to be the mother of invention, but research testing whether this is the case is surprisingly rare. This column addresses this gap in the literature by assessing whether firms in creative industries in the UK are more innovative than firms outside creative industries. The authors also examine whether the location of creative-industry firms in creative cities – and the size of creative cities – matters for the innovative capacity of these firms.
Shiv Chowla, Lucia Quaglietti, Łukasz Rachel, Wednesday, November 26, 2014
The importance of world shocks for the UK economy has been demonstrated by the events since 2007. This column suggests that world shocks are likely to have driven around two-thirds of the shortfall in output since 2007. Trade linkages are an important channel for the transmission of world shocks to the UK, but financial linkages and spillovers through uncertainty are likely to account for the majority of the impact.
Charles A.E. Goodhart, Jonathan Ashworth, Wednesday, October 8, 2014
Despite the growth of online and card payments, the ratio of currency to GDP in the UK has been rising. This column argues that rapid growth in the grey economy has been a key cause. The authors estimate that the grey economy in the UK could have expanded by around 3% of UK GDP since the beginning of the Global Crisis.
David Blanchflower, Stephen Machin, Monday, September 29, 2014
Real wages continue to fall in the UK and elsewhere, yet despite this striking feature of the labour market, some commentators anticipate resurgent pay growth in the near future. This column argues that the absence of any improvement in the UK’s productivity performance – together with evidence that nominal wage growth is flatlining and real wage growth is falling – make it highly unlikely that wage growth is about to explode upwards.
Joanne Lindley, Steven McIntosh, Sunday, September 21, 2014
Individuals who work in the finance sector enjoy a significant wage advantage. This column considers three explanations: rent sharing, skill intensity, and task-biased technological change. The UK evidence suggests that rent sharing is the key. The rising premium could then be due to changes in regulation and the increasing complexity of financial products creating more asymmetric information.
Karl Walentin, Thursday, September 11, 2014
Central banks have resorted to various unconventional monetary policy tools since the onset of the Global Crisis. This column focuses on the macroeconomic effects of the Federal Reserve’s large-scale purchases of mortgage-backed securities – in particular, through reducing the ‘mortgage spread’ between interest rates on mortgages and government bonds at a given maturity. Although large-scale asset purchases are found to have substantial macroeconomic effects, they may not necessarily be the best policy tool at the zero lower bound.
Marcus Miller, Lei Zhang, Wednesday, September 10, 2014
During the Great Moderation, inflation targeting with some form of Taylor rule became the norm at central banks. This column argues that the Global Crisis called for a new approach, and that the divergence in macroeconomic performance since then between the US and the UK on the one hand, and the Eurozone on the other, is partly attributable to monetary policy differences. The ECB’s model of the economy worked well during the Great Moderation, but is ill suited to understanding the Great Recession.
Jonathan Bridges, David Gregory, Mette Nielsen, Silvia Pezzini, Amar Radia, Marco Spaltro, Tuesday, September 2, 2014
Since the Global Crisis, support has grown for the use of time-varying capital requirements as a macroprudential policy tool. This column examines the effect of bank-specific, time-varying capital requirements in the UK between 1990 and 2011. In response to increased capital requirements, banks gradually increase their capital ratios to restore their original buffers above the regulatory minimum, reducing lending temporarily as they do so. The largest effects are on commercial real estate lending, followed by lending to other corporates and then secured lending to households.
Colin Ellis, Haroon Mumtaz, Pawel Zabczyk, Wednesday, August 6, 2014
This column reports on empirical evidence showing that monetary policy shocks in the UK had a bigger impact on inflation, equity prices, and the exchange rate during the inflation targeting period. Related changes in the transmission of policy shocks to bond yields point to more efficient management of long run inflation expectations.
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, Tuesday, July 8, 2014
How should UK policy-makers respond to potential dangers to the economy from the housing market? As this column reports, a majority of respondents to the fourth monthly survey of the Centre for Macroeconomics (CFM) think that house price dynamics do pose a risk to the UK’s recovery; and that macroprudential tools rather than traditional interest rate policy should be deployed to deal with this risk.
Paul De Grauwe, Monday, July 7, 2014
There has been a stark contrast between the experiences of Spain and the UK since the Global Crisis. This column argues that although the ECB’s Outright Monetary Transactions policy has been instrumental in reducing Spanish government bond yields, it has not made the Spanish fiscal position sustainable. Although the UK has implemented less austerity than Spain since the start of the crisis, a large currency depreciation has helped to reduce its debt-to-GDP ratio
João Paulo Pessoa, John Van Reenen, Saturday, June 28, 2014
The fall in productivity in the UK following the Great Recession was particularly bad, whereas the hit to jobs was less severe. This column discusses recent research exploring this puzzle. Although the mystery has not been fully solved, an important part of the explanation lies in the flexibility of wages combined with very low investment.
James Cloyne, Patrick Hürtgen, Thursday, May 15, 2014
The effects of interest-rate changes on output and inflation could be much larger than previously thought. Such evidence was suggested by Romer and Romer in their analysis of the US. This column provides similar estimates for the UK based on a novel real-time dataset. In response to a 1% increase in the interest rate, output declines by 0.6% and inflation falls by one percentage point after two to three years.
David Blanchflower, Stephen Machin, Monday, May 12, 2014
The pain of the UK’s Great Recession has been spread more evenly than previous downturns, with falling real wages across the distribution. This column asks why this happened, how it compares with the US experience, and what the prospects are for recovering lost wage gains.
Barbara Petrongolo, Sunday, April 27, 2014
Long-term unemployment in the UK increased substantially after the recent recession. Many policy interventions have attempted to address this problem. The UK’s long-term unemployed face tougher requirements in return for their benefits – community work, training programmes, or daily visits to the Jobcentre. This column tries to assess the likely success of the UK government’s strategy by surveying the effectiveness of the ‘sticks’ and ‘carrots’ of active labour market policies.