National Institute Of Economic And Social Research Research Articles

THE ROLE OF AN NSI IN A PANDEMIC

It is an enormous privilege for me to present the Deane–Stone lecture. As a young academic at the University of Southampton, I read so much of the work that came out of the National Institute of Economic and Social Research (NIESR) and was always impressed. Also, as an undergraduate and as a master’s student at the London School of Economics, Sir Richard Stone and Professor Phyllis Deane featured prominently on my reading list. In my opinion, they were pioneers of economic measurement and, today, economists benefit hugely from their legacy.

Forecast Comparisons

This paper compares the National Institute of Economic and Social Research (NIESR) forecasts for output, inflation and key public sector finance variables against the corresponding forecasts from HM Treasury (HMT), the Bank of England (Bank) and the Institute for Fiscal Studies (IFS). We find that NIESR outperforms, on average, other major bodies in its forecasts for output and in particular inflation where simple scores are used. It also performs well on the forecasting of the government current budget surplus but not public sector net borrowing. Statistical estimates of accuracy provide a less clear picture but their reliability is blighted by the small sample size.

Research Round-Up

The research presented in this issue produces a mixed picture in terms of government performance in key social security areas. Cathie Hammond’s research on the administration of Disability Living Allowance (DLA) for people with chronic fatigue syndrome/myalgic encephalomyelitis (CFS/ME) is critical of policy in this field and provides various recommendations for improvements. The Joseph Rowntree Foundation’s review of unemployment rates found, reassuringly, that all areas in England had benefited from economic growth, but that some areas had benefited much more than others, leading to greater polarisation overall. The next piece of research covered here, one of four pieces commissioned by the Department for Work and Pensions, argues that the Capability Report should be retained but that various aspects of it need revision. The next piece, a survey of employers’ pension provision, also shows mixed results – with only 29% of organisations providing some kind of pension for their employees but 72% of employees covered by these pensions (because larger organisations are much more likely to have such provision). In another study, clients’ experiences of ONE are mixed, depending on the type of client they are and the way the service is delivered. The last piece ends on a positive note in terms of government policy performance. Research from the Policy Studies Institute (PSI) and National Institute of Economic and Social Research (NIESR) demonstrates the effectiveness of the New Deal for Young People in finding jobs for its target group without detrimentally affecting the employment chances of older people.

Productivity, Machinery and Skills in the United States and Western Europe: Precision Engineering

Previous intra‐European comparisons carried out at the National Institute of Economic and Social Research (NIESR) have identified close links between inter‐country differences in ‘intermediate’ — shopfloor, technician and supervisory — skill levels and relative labour productivity performance. However, in this context the economic performance of the United States constitutes a ‘puzzle’ of considerable interest for, in spite of intense concern about the apparent inadequacies of education and training provision below four‐year degree level in the US, average labour productivity levels in US manufacturing and in the economy as a whole remain the highest in the world.

The Interfaces between Policy Makers, Markets and Modellers in the Design of Economic Policy: An Intermodel Comparison

Economic policy makers wish to bring about the 'best' set of economic circumstances within the constraints set out by the economic system. A natural way to express this problem formally is in terms of a policy maker who maximises a given objective function (or equivalently, specifies a set of policy priorities or trade offs) in the light of a set of beliefs regarding the workings of the economy. As detailed models representing views of how the economy works have been available for over twenty five years, it is natural to formalise this notion within the context of the large macroeconometric models and to use optimal control techniques. The basic technology for carrying out such exercises has been available for many years (Ball Committee on Policy Optimisation I978). Optimal policy exercises published ex ante and described by Bray (I 994) on the Treasury model and by Westaway (I995) on the National Institute of Economic and Social Research models yielded policies which would have avoided some of the major economic policy errors that have been made in recent years. This in itself does not validate such policies, but it justifies their further development. Comparisons have been made between optimal policies derived from different models by Whitley et al. (I992) and Bray et al. (I993). This paper simulates current UK economic policy making by policy optimisation exercises on the Treasury, Oxford Economic Forecasting (OEF), London Business School (LBS) and National Institute of Economic and Social Research (NIESR) models, earlier versions of which were used in the above comparisons. In this exercise, recommendations for instrument trajectories and expected outturns for the economy differ substantially. This is because of differences not merely in the picture the different models give of the objective behaviour of the economy, and the assumptions they make about policy makers' objectives and priorities. It is also because of the assumptions made about the way economic agents and the authorities learn, and form expectations, and the nature of the strategic games they are playing.

Cointegration and forecast evaluation: Some lessons from National Institute Forecasts

AbstractThe recent experience of macroeconomic forecasting in the United Kingdom has prompted renewed interest in the evaluation of economic forecasts. This paper uses cointegration tests to investigate what can be learnt from the forecasts produced by the National Institute of Economic and Social Research (NIESR) over the last two decades. Whilst the forecasts and outturns are found to be cointegrated, there remains evidence of systematic relationships between a number of forecast errors. Our results also fail to reject non‐cointegration between different vintages of data, suggesting that considerable care should be exercised in both the choice of realisation data used and in the means by which efficiency is tested.

Comparative Properties of Models of the Uk Economy

This paper describes the overall properties of six major macroeconomic models, through dynamic multiplier analysis of a number of standard simulation exercises. The models are those of the London Business School (LBS), the National Institute of Economic and Social Research (NIESR), HM Treasury (HMT), the Bank of England (BE), the City University Business School (CUBS) and the Liverpool University Research Group in Macroeconomics (LPL), as deposited with the ESRC Macroeconomic Modelling Bureau in late 1987. The simulations demonstrate the response of the models to changes in key policy instruments and to exogenous shocks; they are conducted, as far as possible, in a consistent manner across the models.

Models of the UK Economy and the Real Wage-Employment Debate

This article is an example of the type of exercise that is made possible by the existence of the set of UK models at Warwick. Using three quarterly models, those of the London Business School (LBS), the National Institute of Economic and Social Research (NIESR) and Her Majesty's Treasury (HMT), and two annual models, those of the City University Business School (CUBS) and the Liverpool University Research Group in Macroeconomics (LPL), it considers the use, and possible abuse, of such models of the UK economy to illustrate the real wage—employment debate.In UK models real wages and employment are determined jointly and the article shows that the sign of the association between these two variables depends ore the nature of the shock which causes real wages to change. A common method of analysis is to perturb the endogenous real wage directly and although the results are quantitatively similar to those where the change to real wages results from a supply-side shock to the labour market, it is argued that such exercises are typically without foundation since no mechanism for achieving a direct reduction in real wages is put forward. Any implicit model which underpins the assumption of an exogenous shift in an endogenous variable needs to be stated clearly in order for the plausibility of the ‘intervention’ and resulting policy analysis to be assessed.

Bank Lending To Industrial and Commercial Companies in Three Models of the UK Economy

In this article we compare the determination of bank advances to UK industrial and commercial companies (ICC) in three forecasting models of the British economy: those developed at the National Institute of Economic and Social Research (NIESR), at the Treasury (HMT) and at the Bank of England (BOE). In each of these models the private sector's demand for loans is an important element in the determination of the broadly-defined money stock (£M3), the rate of growth of which has been an important intermediate target of macroeconomic policy in recent years.

Crowding Out in the UK within an Optimal Control Framework

ABSTRACTAn important issue in the discussion of fiscal policy is the contention that the public sector could expand only at the expense of the private sector, which must contract to provide the necessary room. This paper is concerned with ‘financial’ crowding out, which relates to the financing of public expenditure, rather than resource crowding out, which relates to the size of public expenditure. The paper attempts to determine empirically, using the National Institute of Economic and Social Research (NIESR) macroeconomic model of the UK economy, whether fiscal actions under different modes of finance affect some strategic economic variables. The paper utilises techniques of optimal control, which are considered superior to simulation. The main conclusion of the paper is that there is no significant crowding out in the NIESR model; it is, nevertheless, important to distinguish between money-financed and bond-financed increases in government expenditure.

Optimal Instruments for Monetary Control

The paper examines various problems that arise in the design of shortrun optimal monetary policy by using the monetary sector of the non-linear econometric model of the UK economy developed by the National Institute of Economic and Social Research (NIESR). Given the present tendency to formulate short-run monetary policy through the intermediate target approach the paper addresses the issue of which is the optimal variable to serve as an intermediate target. In this context the underlying trade-offs between controlling a monetary aggregate and maintaining money market stability are derived empirically. The sensitivity of the results with respect to the horizon is also considered. Finally, the results are compared with those from other studies and some tentative conclusions are drawn