Ec 111 week 1b(1)


Published on

Published in: Technology, Economy & Finance
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Ec 111 week 1b(1)

  1. 1. EC-111: British EconomyRecent Macro EconomicPolicy and TrendsDr Catherine RobinsonF35, Richard PriceOffice hours: Monday 10.30-11.30 and Thursday 9.30-10.30Appointments: 1:2 1
  2. 2. Picking up from yesterday Macro economy policy targets may be defined as thefollowing variables Employment Inflation Balance of Payments Economic growth Debt Policy levers Fiscal policy Monetary policy Exchange rate Incomes and pricing policiesWeek 1:22
  3. 3. Attendance1. Click 1 on your keypad and hold it down until aappears.
  4. 4. There are trade-offs Between inflation and unemployment The Phillips Curve (1958) Curbing government spending lowers earnings forpublic sector workers or reduce employment Raising the exchange rate makes exports relativelymore expensive and lowers (manufacturing) output So how do you balance multiple objectives? Instruments are not independent of one another AND instruments have in the past becomeobjectives Exchange rate instrument <<more when wediscuss the ERM>>Week 1:24
  5. 5. The Phillips Curve Each dot represents ayear 1913-1948 As wages increase(inflation)unemployment declinesWeek 1:25
  6. 6. Theory of Economic Policy Tinbergen (1952) Fixed targets Tinbergen’s rule – there should be at least as manyinstruments as there are objectivesWeek 1:26
  7. 7. Two instruments, two objectivecaseWeek 1:127O1O2Instrument 1 (egmonetary policy)Instrument 2 (eg fiscalpolicy)0I1`I2`Source: Griffiths and Wall, 2001Movement away from theorigin is an expansionarypathO1 is objective 1 (internalbalance) at a particulartarget valueO2 is the objective 2(external balance) at aparticular target valueEAssume O1 is fullemployment andO2 is balance ofpayments equilibrium
  8. 8. Two instruments, 3 objective caseWeek 1:28O1O2Instrument 1 (egmonetary policy)Instrument 2(eg fiscalpolicy)0I1`I2`Source: Griffiths and Wall, 2001O3GFEnow with O3 –assume it iseconomic growth(positively sloped)
  9. 9. Flexible targets (Theil, 1956) Pre-supposes that there is welfare loss associated withmissing the fixed targets Implicitly assumes that there is a social welfare functionfor the population It then becomes a question of weightingWeek 1:29
  10. 10. Satisficing’ (Mosley, 1976) Policy makers are satisficing agents, influenced primarilyby recent levels Looking at the 1946-71 period Mosley found that anybalance of payments deficit resulted in policy change – sothat only zero or positive BoP was satisfactory. Benchmark for unemployment was variable over timeWeek 1:210
  11. 11. Which of these definitions bestdescribes the term ‘satisficing’?Week 1:2111. Bureaucratic organisationsmaximise profits2. Bureaucratic organisationscontinually strive for the bestpossible outcomes3. Bureaucratic organisationsreact only when welfarereaches an unsatisfactorylevel
  12. 12. Britain in Context GDP – from national income accounting Gives national wealth figures Need to convert to per capita measures for welfare index Employment rates Activity rates Inflation rates Balance of payments Exchange rates Debt levels Productivity – labour (and total factor) A more esoteric measure but designed to capture efficiency Is considered to be one of the better measures of standards of living Who is our comparator? European Union members Frontier economies – USA CommonwealthWeek 1:2
  13. 13. Where can I find out what the UK lookslike? Economic Outlook from the OECD provides the most up to datenational statistics in one place Alternative data sources for international comparisons....Eurostat; EUKLEMS (for industry comparisons) Also, very useful is the Penn World Table This has data from 1950-2010 on about 180 countries National data source – Office for National Statistics Sub-national data – StatsWales Alternatively – The Economist’s Big Mac IndexWeek 1:2
  14. 14. Unemployment rates 1979-2010Week 1:20510152025FranceIrelandItalySpainUnited KingdomUnited States
  15. 15. Harmonised unemployment rates(% of civilian labour force)Week 1:1150510152025Australia France Germany Greece Ireland Israel (1) Spain UnitedKingdomUnitedStatesEuro Area20102011OECD outlook 2013
  16. 16. Unemployment rates OECDcomparisonsWeek 1:2024681012Canada Japan United Kingdom United States1960s 1970s 1980s 1990s 2000s//
  17. 17. British GDP in 2005 InternationalDollars (PPP converted)Week 1:205000001000000150000020000002500000300000019501953195619591962196519681971197419771980198319861989199219951998200120042007Source: Penn World Tables, 2011
  18. 18. Nominal GDP Growth(%change from previous year)Week 1:2Source: OECD Outlook 2013-15.0-10.0- 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012AustraliaFranceGermanyGreeceIrelandSpainUnited KingdomUnited StatesEuro areaTotal OECD
  19. 19. Dollar exchange rates over timeWeek 1:200.511.522.5 195019521954195619581960196219641966196819701972197419761978198019821984198619881990199219941996199820002002200420062008exrate$FRAGBRSource: Penn WorldTables, 2011
  20. 20. Week 1:120
  21. 21. Balance of PaymentsCurrent account as %GDPWeek 1:2-12-10-8-6-4-20241995199619971998199920002001200220032004200520062007200820092010 FranceIrelandItalySpainUnited KingdomUnited States
  22. 22. UK Imports and Exports overtimeWeek 1:205101520251960s 1970s 1980s 1990s 2000sImports Exports
  23. 23. Debt: 1979-2011Guardian Datablog, March 2013
  24. 24. A tiny word of caution.. Lies, damned lies and statistics... It is important that we are comparing like with like Whilst there is broad agreement on national accountingpractices, in reality, all national statistics agencies countdifferently Recent US treatment of computer software in the capitalaccount <<more on this with the 1990s ICT productivityparadox>> Slightly pedantic, and easy to get bogged down indetailWeek 1:2
  25. 25. Macroeconomic performanceWeek 1:225
  26. 26. Labour productivity growthGVA per hour workedWeek 1:2010203040506070197019721974197619781980198219841986198819901992199419961998200020022004200620082010FranceIrelandItalyUnited KingdomUnited StatesSource: OECD Stats extract 2011
  27. 27. GDP per person (2005$) 1950-2009Week 1:205000100001500020000250003000035000400004500050000195019521954195619581960196219641966196819701972197419761978198019821984198619881990199219941996199820002002200420062008AUSDNKGBRUSAFRASource: Penn WorldTables, 2011
  28. 28. GDP per hour worked Growth %pa(PPP converted $, 2005 prices)Week 1:2 Source: Penn WorldTables, 2011-6-4-20246810121419511954195719601963196619691972197519781981198419871990199319961999200220052008GDP growth
  29. 29. So what can be said about UKperformance? Labour productivity has traditionally lagged behind Considerable work has been devoted to improving the proxiesof skills and capital in recent years Are Britons less skilled than other nations? Do they invest less in capital, or the wrong sort of capital? Sources of Growth literature also focuses on disaggregatednational performance Is it down to the manufacturing/service balance in theeconomy? The public/private sector balance? We will explore these over the next few weeksWeek 1:2
  30. 30. Spending the next few weekslooking at why• Historical context The decline of imperialism and the move from theCommonwealth to Europe Political context is crucial Economic policy is a big part of this We live in interesting times The current financial crisis is the biggest since the 1930sand is causing economists (particularly) to re-evaluatesome fundamentals…Week 1:2
  31. 31. Next week... A lesson in UK (and European) economic history When was national accounting invented? What happened after WWII? The birth of the welfare state Through to the oil crisis of the 1970s and the ‘Winter ofDiscontent’Week 1:2
  32. 32. ReferencesFor this week...Griffiths and Wall (2011) 12th Edition – handy for the Tinbergen theoryMosley (1976) Towards a Satisficing theory of Economic Policy’, TheEconomic Journal, 86(341), 59-72 (available on JSTOR)O’Mahony, M. and C. Robinson (2007) UK Growth and Productivity in anInternational Perspective: Evidence from EUKLEMS, National InstituteEconomic Review, 200, April, 2007, 79-86 For next week if you want to look ahead...Alford, BWE (1988) ‘British Economic Performance 1945-1975’Week 1:2